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Worldwide Tax SummariesCorporate Taxes 2017/18

Quick access to information about corporate tax systems in 157 countries worldwide.

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Worldwide Tax SummariesCorporate Taxes 2017/18

All information in this book, unless otherwise stated, is up to date as of 1 June 2017.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2017 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

Foreword

As governments across the globe are looking for greater transparency and with the increase of cross-border activities, tax professionals often need access to the current tax rates and other major tax law features in a wide range of countries. The country summaries, written by our local PwC tax specialists, include recent changes in tax legislation as well as key information about income taxes, residency, income determination, deductions, group taxation, credits and incentives, withholding taxes, indirect taxes, and tax administration. All information in this book, unless otherwise stated, is up to date as of 1 June 2017.

Our online version of the summaries is available at www.pwc.com/taxsummaries. The Worldwide Tax Summaries (WWTS) website also covers the taxation of individuals and is fully mobile compatible, giving you quick and easy access to regularly updated information anytime on your mobile device.

Some of the enhanced features available online include Quick Charts to compare rates across jurisdictions. You may also access WWTS content through Tax Analysts at www.taxnotes.com.

If you have any questions, or need more detailed advice on any aspect of tax, please get in touch with us. The PwC tax network has member firms throughout the world, and our specialist networks can provide both domestic and cross-border perspectives on today’s critical tax challenges.

Colm KellyGlobal Tax & Legal Services LeaderPwC Ireland

Welcome to the 2017/18 edition of Worldwide Tax Summaries – Corporate Taxes, one of the most comprehensive tax guides available. This year’s edition provides detailed information on corporate tax rates and rules in 157 countries worldwide.

1www.pwc.com/taxsummaries Foreword

PwC Worldwide Tax Summaries2 Contents

Contents

Foreword ...............................................1

Country chapters Algeria ..................................................4Angola ................................................. 14Botswana ............................................27Cabo Verde ..........................................36Cameroon, Republic of ........................55Chad ...................................................69Congo, Democratic Republic of the ......83Congo, Republic of ..............................99Egypt .................................................120Equatorial Guinea .............................135Gabon ............................................... 142Ghana ...............................................158Ivory Coast (Côte d’Ivoire) ................. 172Kenya ................................................185Madagascar .......................................203Malawi .............................................. 213Mauritius ..........................................226Morocco ............................................244Mozambique .....................................256Namibia, Republic of .........................270Nigeria ..............................................287Rwanda .............................................303Senegal ............................................. 316South Africa ......................................326Swaziland .........................................345Tanzania ...........................................351Tunisia ..............................................365Uganda .............................................392Zambia .............................................. 413Zimbabwe .........................................428

Worldwide Tax Summaries Editorial Team ...................................441

Country chaptersAfrica

Algeria 4www.pwc.com/taxsummaries

Algeria

PwC contact

Lazhar SahbaniPricewaterhouseCoopers Algérie5 rue Raoul Payen - Hydra 16 035, AlgerTel: +213 21 98 21 47Email: [email protected]

Significant developments

The Finance Law for 2017 introduced a wide range of tax measures dedicated to increase the state’s revenues, as well as other provisions intended to stimulate the investment dynamic in the country. These include, notably, the following measures:

• Upward revision of value-added tax (VAT) rates: The standard VAT rate is increased from 17% to 19%, while the reduced VAT rate grows from 7% to 9%.

• Establishment of an obligation for companies carrying out transactions with related companies to keep analytical accounting.

• Increasing from 500,000 Algerian dinars (DZD) to DZD 2 million the penalty amount relating to a failure to provide or an incomplete production of transfer pricing documentation.

• Application of VAT under the self-assessment regime on the remunerations paid offshore and subject to a reduced withholding tax (WHT) rate by application either of domestic law such as international lease agreement and software remuneration or the double taxation provisions.

• Introduction of an energy efficiency tax.• Removal of the obligation to pay imports via the documentary credit.

Taxes on corporate income

Corporate entities are taxed on activities performed in Algeria via the following two regimes:

Standard tax regime

Resident companiesThe standard tax regime is applicable for all tax resident companies, which are taxed in Algeria on their worldwide income. The standard tax regime includes the following taxes:

• Impôt sur le Bénéfice des Sociétés (IBS) at the rate of:• 19% for manufacturing activities.• 23% for building activities, public works, and hydraulics, as well as tourist and

thermal activities, excluding travel agencies.• 26% for all other activities not mentioned above.

For mixed activities, companies should keep management accounts to determine the portion of each activity performed. Failing this, the highest rate (i.e. 26%) will be applicable for all of the taxable profits.

PwC Worldwide Tax SummariesAlgeria5

Algeria

Nil corporate annual tax returns include the payment of a minimum corporate tax amounting to DZD 10,000.

• Tax on business activity (TAP) at the rate of 1% for manufacturing activities, without any reduction. However, this tax is fixed at 2% for all other activities, with a reduction of 25% for some activities and locations, and computed based on the invoiced turnover.

• VAT at the rate of 19% or 9% (except any specific exemption). See VAT in the Other taxes section for more information.

• Branch tax set at the rate of 15% calculated on net profits after IBS. See the Branch income section for more information.

Non-resident companiesIn the absence of a double tax treaty (DTT), the basic principle that governs taxation of non-resident entities is that such entities are taxable in Algeria on their Algerian-source income whatever the way and wherever the location the work is carried out, provided only that the same are rendered or used in Algeria.

As a consequence, an entity will be liable for IBS via the WHT regime (see below) in Algeria through the execution of a related contract (services contract) to be performed in Algeria. From an Algerian point of view, such a contract is not an investment and is, by nature, temporary. Note that it is possible to execute several contracts under the same permanent establishment (PE).

In the presence of a DTT, a foreign company will be taxed in Algeria if it has a PE only.

Withholding tax (WHT) regimeNon-resident entities performing service contracts in Algeria are subject to the WHT regime. The 24% WHT, which encompasses the IBS, the TAP, and the VAT, is required to be levied on services only. The calculation base is the gross amount of the services invoiced.

Please note that Finance Law for 2017 subjects contracts that had been taxed under the 24% WHT to the Algerian VAT when its basis of calculation benefited from a reduction in the rate or rebates as provided for by the local tax legislation or the DTTs.

Local income taxesThere are no local or provincial taxes on income in Algeria. The TAP is being distributed for each district/location where there is a principal or secondary establishment.

Corporate residence

According to the provisions of Article 137 of the Algerian Tax Code, a company is considered as an Algerian tax resident entity in cases where it is incorporated under the Algerian law and is realising (i) commercial, industrial, or agricultural activities (physical presence obligation) or (ii) taxable profits through dependent agents. However, please note the existence of the PE concept, which can also refer to permanent place of business.


Algeria

Permanent establishment (PE)The Algerian legislation introduces the PE concept in Article 137 of the Algerian Tax Code, relating to territoriality rules of IBS. This Article provides that IBS is due in Algeria on:

• Profits made by companies, which, without owning in Algeria an establishment or designated representatives, directly or indirectly perform an activity in Algeria resulting in a complete cycle of commercial operations.

• Profits made by companies using the assistance of representatives in Algeria that don’t have a separate professional personality from these companies.

Based on the above, a PE is created under Algerian law if a professional activity is performed in Algeria by a foreign entity and this activity is generating a complete business cycle, or in the case whereby a foreign company is making profits in Algeria through a dependent agent.

Other taxes

Value-added tax (VAT)VAT is applied on the supply of goods or services in Algeria. It includes all economic activities conducted in Algeria. The zero rate is also applied to all exports and sales to exempted sectors under specific regimes. The standard VAT rate is 19%. The reduced rate is 9%, applying to various basic items listed by law.

Monthly VAT returns and payments are due by the 20th day of the following month.

Customs dutiesAlgerian imports are subject to payment of customs duties in the following increments: duty-free, 5%, 15%, or 30%.

Specific customs exemptions and temporary admission regimes are granted to the oil and gas sector and to investments under the incentives tax regime of the National Agency of Investment (ANDI in French).

Excise taxesAll tobacco products are subject to excise tax.

Property taxesAn annual property tax is levied on real estates in Algeria. Rates depend on the location of real estate.

Wealth taxWealth tax is calculated as follows:

Value of the holdings (DZD) Rate (%)Less than 100,000,000 0100,000,001 to 150,000,000 0.50150,000,001 to 250,000,000 0.75250,000,001 to 350,000,000 1.00350,000,001 to 450,000,000 1.25More than 450,000,000 1.75


Algeria

Transfer taxesA transfer tax is applicable to land, buildings, and ongoing business at a rate of 5% for registration fees, plus 1% tax applicable for publication formalities of land and building transfer of ownership. Additionally, registration duties are due on the transfer of shares or movable assets and on the merger, demerger, increase, or decrease of the share capital of existing companies.

Stamp taxesStamp duty is levied at varying rates on transactions, including the execution of various documents and deeds.

Payroll taxesPersonal income tax (PIT) is withheld on salary and assimilated income (minus employee social security contributions) by applying the progressive scale rates (with a maximum rate of 35%). Additionally, training tax and apprenticeship tax are each levied at the rate of 1% of the payroll cost.

Social security contributionsSocial security contributions are levied at the rate of 35% on the gross salary (26% borne by the employer and 9% borne by the employee).

Bank domiciliation taxA 3% tax (Taxe de domiciliation bancaire) applies on the importation of services. Fixed fees are applicable for the importation of goods (DZD 10,000 per shipment).

Pollution taxAssets that may cause environmental damage are subject to a pollution tax.

Branch income

Branch tax is levied at the rate of 15%. Note that, since 2010, it is no longer possible to register a legal branch in Algeria. However, under certain conditions, a foreign company could operate in Algeria by registering its contract with the local tax authorities by registering a tax branch/PE. Under this scenario, a 15% tax rate applies on the deemed distribution of profits after tax, which may be reduced or removed by the applicable DTT provisions.

Income determination

Taxable income is determined using the accounting profits and adding back non-deductible expenses and deducting the allowable non-taxable incomes.

Inventory valuationThe inventory valuation method for tax purposes must match the accounting method as defined by the Algerian Financial Standards (SCF).

Capital gainsCapital gains realised on the sale of assets are taxed as ordinary income when realised by a company subject to IBS. For certain assets, 30% relief is given where the assets have been held for up to three years, and 65% relief is given where the movable assets


Algeria

have been held longer. Capital gains on the disposal of assets can be exempted if the company commits to re-invest them within a three-year period.

Dividend incomeDividends to non-resident shareholders are subject to WHT at source of 15%, which may be reduced or neutralised by an applicable DTT. For resident shareholders, dividends are subject to WHT at source of 10%. If the dividends are received by a parent entity resident in Algeria, they are not included in the taxable profits for IBS purposes.

Interest incomeInterests paid are subject to 10% WHT and are included in the income of the beneficiary and subject to IBS if the beneficiary is a legal entity. Interests paid to a non-resident are generally subject to a 10% WHT. The rate may be reduced under an applicable DTT.

Rental incomeRental income is subject to IBS when received by a taxable corporate entity in Algeria. Rental income paid to non-residents is subject to 24% WHT, except for international lease agreements, where a reduction of 60% on the taxable basis is applicable, making the effective tax rate 9.60%. However, since January 2017, international lease agreements having benefited from the 60% taxable base reduction are subject to the Algerian VAT, which must be self-assessed by the local payer.

Royalty incomeSubject to DTT provisions, royalties are subject to 24% WHT. A reduction of 80% on the taxable basis is applicable for software, making the effective tax rate 4.80%. Since January 2017, the royalties on software having benefited from the 80% taxable base reduction are subject to the Algerian VAT, which must be self-assessed by the local payer.

Furthermore, the 24% WHT rate could change in presence of a DTT.

Unrealised gains/lossesRealised gains and losses are subject to IBS. However, unrealised gains and losses are not subject to IBS. There are specific provisions relating to the free re-evaluation of assets.

Foreign currency exchange gains/lossesForeign realised currency exchange gains/losses are subject to IBS.

Foreign incomeSubject to DTT provisions, income from other countries is liable to IBS in Algeria, except exportation revenues and revenues realised in hard currency by resident legal entities, which are exempted.

Deductions

Depreciation and amortisationThe depreciation rates are determined according to tax administration instructions and common usage, for example:


Algeria

• The depreciation rate for office items is 10% or 20%.• The depreciation rate for industrial buildings is 5%.• The depreciation rate for cars is 20% or 25%. The depreciation base for cars is

limited to DZD 1 million.

Accelerated depreciation rates, when justified, can be used, depending on the activity sector and the economic use of the assets.

GoodwillUnder the SCF, goodwill is registered in the local books as a non-current/intangible asset of the balance sheet and cannot be amortised. Consequently, the accounting of goodwill has no fiscal impact for companies.

Start-up expensesStart-up expenses are deductible when paid and cannot be capitalised and depreciated.

Interest expensesInterest expenses are deductible when paid.

Bad debtA bad debt provision becomes deductible when legal action has been taken to recover the debt or when evidence is provided that the receivable has become irrecoverable.

Charitable contributionsCharitable contributions are deductible, up to a limit of DZD 1 million.

Pension expensesPension expenses are deductible when paid.

Payments to directorsPayments to directors are deductible.

Research and development (R&D) expensesR&D expenses are fully deductible when paid by the entity bearing the expenses and when justified. Revenues derived from R&D activities are exempted from IBS, up to a limit of 10% of the taxable benefit or DZD 100 million. The exempted amount has to be reinvested in R&D activities.

Bribes, kickbacks, and illegal paymentsBribes, kickbacks, and illegal payments are non-deductible from the IBS basis.

Fines and penaltiesFines and penalties are non-deductible from the IBS basis.

TaxesTaxes duly paid are deductible, except for the IBS itself, which is not deductible. Also non-deductible for IBS purposes are the tax on apprenticeship and training and tax on passenger cars.

Net operating lossesCarryforward losses are permitted until the fourth fiscal year following the year of loss. Carryback losses are not permitted.


Algeria

Payments to foreign affiliatesPayments to foreign affiliates are deductible.

Group taxation

When an Algerian company holds 90% or more of the shares of one or more Algerian companies, the group may choose to be taxed as a single entity. Hence, IBS is payable only by the parent company. Under this system, the profits and losses of all controlled subsidiaries in Algeria are consolidated. The consolidated group may also benefit from other tax advantages, such as exemption from VAT and TAP on the inter-group transactions.

Transfer pricingAn arm’s-length approach to transfer pricing applies. All entities registered with the tax department responsible for large-sized companies (Direction des Grandes Enterprises), in addition to the other foreign companies established in Algeria, must submit their transfer pricing documentation along with their annual tax returns (before 30 April of each year). Failing this, and should the documentation to support one’s transfer pricing practices not be provided within 30 days after a first request is made by the Algerian tax administration, a fine of 25% of the deemed transferred benefits on top of the late payment penalties of 25% are applicable.

Please note that, since 2017, related companies should keep management accounts in order to justify their transfer pricing policies, which should be provided upon tax administration request.

Thin capitalisationThere are no thin capitalisation provisions in Algeria.

Controlled foreign companies (CFCs)There are no CFC rules in Algeria.

Tax credits and incentives

Investment incentivesTax incentives can be granted to new investors, subject to the application of a specific request with the ANDI. The tax incentives can be granted for the investment phase and for the exploitation phase. They can be granted for a period of three years or five years, depending on the kind and the size of the business.

Other incentives can be granted for start-up businesses to encourage youth investment.

Many tax regimes and tax holidays/incentives are available to attract foreign direct investors in Algeria. For example, there is a temporary exemption from IBS for investing companies creating 100 jobs or more. VAT and custom duties exemptions are also available during the investment phase.

There is also a temporary exemption from IBS for companies that invest in certain strategic sectors, such as advanced technologies, the food industry, mechanics, and the automotive sector.


Algeria

There is a five-year reduction of IBS for companies whose securities are introduced on the stock exchange.

Foreign tax creditAlgerian tax law does not provide for unilateral tax relief. A DTT, however, may provide for bilateral relief.

Withholding taxes

As explained in the Taxes on corporate income section, The WHT levied on services is 24%, which covers IBS, TAP, and VAT (i.e. three taxes in one). The calculation base is the gross amount of the services invoiced. In principle, it could be reduced or removed by a DTT.

The WHT levied on dividends (10% for residents and 15% for non-residents) and the 10% WHT levied on interest can be reduced in the presence of a DTT.

The WHT levied on royalties is 24%. In the presence of a DTT, the WHT cannot exceed 5%, 10%, or 12%, depending on different cases.

Double tax treaty (DTT) rates

Recipient Dividends (%) Interest (%) Royalties (%)Non-treaty 15 10 24 (1)Treaty:Austria 5/15 0/10 10Bahrain 0 0 (2)Belgium 15 0/15 5/15Bulgaria 10 10 10Canada 15 0/15 15Egypt 10 5 10France 5/15 (3) 10/12 (4) 5/10/12 (5)Germany 5/15 10 10Italy 15 15 5/15Kuwait 0 0 15Lebanon 15 10 10Portugal 10/15 15 10Romania 15 15 15Saudi Arabia 0 0 7South Africa 10/15 10 10South Korea 5/15 10 2/10Spain 5/15 5 7/14Switzerland 5/15 10 10Turkey 12 10 10United Arab Emirates 0 0 10United Kingdom (6) 5/15 (7) 0/7 (8) 10Arab Maghreb Union 15 10 24

Notes

1. Equipment rental may be considered as royalties, or remuneration of services entering in the scope of industrial and commercial benefits, or other remuneration. Royalties paid for the use of industrial


Algeria

equipment in the frame of an international leasing contract is subject to a tax allowance of 60% applied on the basis of such WHT. Thus, the effective tax rate of WHT will be 9.6% = 24% * (1 - 60%). For software, a reduction of 80% is applicable, making the effective tax rate 4.80%. VAT should be self-assessed in this case.

2. Domestic rate applies. There is no reduction under the treaty.3. 5% if the beneficial owner is a company that directly or indirectly holds at least 10% of the capital of

the company paying the dividends. 15% in all other cases.4. 10% if the beneficial owner is resident in Algeria and interests sourced from France and 12% if the

beneficial owner is resident in France and interests sourced from Algeria.5. 5% for royalties paid for the use of, or the right to use, any copyright of literary, artistic, or scientific

work, including cinematographic films, or films, tapes, and other means of image or sound reproduction. In other cases, 10% if royalties sourced from France and 12% if royalties sourced from Algeria.

6. DTT provisions entered into force on 1 January 2017 in Algeria for WHTs and other taxes.7. 5% if the beneficial owner is a company (other than a partnership) that directly holds at least 25% of

the capital of the company paying the dividends. 15% in all other cases.8. 0% if the interests are paid: (i) to the United Kingdom (UK) state, its central bank, a political

subdivision, or a local authority, (ii) by the Algeria state, its central bank, a political subdivision, a local authority, or a statutory body, (iii) if the interests are paid in respect of a loan, debt-claim, or credit that is owed to, or made, provided, guaranteed, or insured by, Algeria, or a political subdivision, local authority, or export financing agency in Algeria. 7% in all other cases.

Tax administration

Taxable periodThe taxable period is the fiscal year, which corresponds generally to the calendar year. For periodic activity, the fiscal year could be different from the calendar year.

Tax returnsCompanies are required to file an annual tax return before 30 April of the following year together with a detailed statement of proceeds paid to third parties with respect to subcontracted services, hiring of personnel and equipment, leases, and technical assistance services, as well as transfer pricing documentation. Monthly tax returns, which include VAT, IBS instalments, WHTs, PIT, and payroll taxes, should be filed within 20 days of the following month.

Payment of taxIBS is paid when the tax return is submitted after offsetting the corporate income instalments already paid before the IBS liquidation. Three IBS instalments are due on 20 March, 20 June, and 20 November, equal each to 30% of the IBS of the previous year.

Tax audit processAs a general rule, the tax administration informs the company when a tax audit has to be performed. The tax audit notification indicates the audited taxes (in all cases: IBS/TAP/VAT) and the concerned period. The company can be assisted by an expert, and it can ask the tax administration about several issues subject to audit. The tax audit is concluded by sending a final tax reassessment notification.

Some discounts or moderations can be granted to a debtor that is usually punctual in meeting its tax obligations and honouring its debts. For this purpose, taxpayers may, if indigent or hinders introduce a release request to the tax administration, seek remission or moderation of direct taxes properly established. A payment schedule may be granted to a company or to an individual in order to honour, progressively, their liabilities.

Taxpayers may also apply for some reconsideration by the tax administration. There are two alternatives:


Algeria

• Applications for reconsideration by the tax administration (recours gracieux). The application may refer to direct and assimilated taxes, related penalties, recovery penalties, and fiscal fines.

• Conditional rebate (remise conditionnelle). Conditional rebate could relate to penalties and fiscal fines. It may concern tax penalties applied under direct taxes, turnover taxes, registration fees, stamp duties, indirect taxes, and non-codified taxes. In order to enjoy these arrangements, the taxpayer must make a written application to the competent authority to which the conditional rebate is requested.

Statute of limitationsSubject to some exceptions, the fiscal statute of limitations is four years.

Topics of focus for tax authoritiesThe tax administration will focus on non-deductible expenses, the declaration of turnover, and, more often, on transfer pricing issues.

Other issues

Exchange controlsA non-resident foreign company can open a non-resident account in local currency (i.e. dinars), called an ‘INR account’, based on the contract to be performed and on its registration to tax. An INR account can be used only for the object (purpose) for which it is opened.

A non-resident foreign company can also open a CEDAC (Compte Etranger en Dinars Algériens Convertible) account, which must be credited only from abroad in foreign currency.

The CEDAC account allows payment in dinars as well as in hard currency. Furthermore, there is no restriction or limitation for transferring any remaining sum in the CEDAC account back abroad in foreign currency or for drawing any foreign payment instrument. The exchange rate that will be used for converting dinar to foreign currency is the official rate at the date of the debit.

Please note that a non-resident foreign company will not be able to transfer any balances from INR accounts to its CEDAC account or abroad without the express authorisation of the central bank, except in case of reimbursing temporary funding from the CEDAC account (such reimbursement must be for the exact same amount).

Please note that trading companies cannot pay any dividends to their foreign shareholders.

Choice of business entityForeign companies can run a business in Algeria through various forms of legal entities (e.g. joint stock company [SPA], limited liability company, partnership company), a joint venture or consortium, or PE. As for legal entities, the foreign companies should comply with the local shareholding requirement. Indeed, the foreign company cannot hold more than 49% of joint venture share-capital in Algeria.

Angola 14www.pwc.com/taxsummaries

Angola

PwC contact

Luis AndradePricewaterhouseCoopers (Angola), LimitadaEdificio PresidenteLargo 17 de Setembro n.º 3 , 1º andar - Sala 137Luanda – República de AngolaTel: +244 227 286 109Email: [email protected]


The major recent tax changes were the following:

• Law No. 5/16, of 17 May 2016, which introduced a Special Gambling Tax. This tax is applicable to the gross revenue arising from the exploration of gambling activities.

• Law No. 22/16, of 30 December 2016, which revoked the Special Contribution on Banking Operations.

• Under the Corporate Income Tax (CIT) Code’s transitional rules, the Autonomous Taxation (AT) enters into force in 2017. Unduly documented expenses, non-documented expenses, and confidential expenses will be subject to AT at rates ranging between 2% and 50%.


CIT is levied, currently at a 30% rate, on the profits deriving from business activities carried out in Angola by resident entities or non-resident entities with a tax permanent establishment (PE), as defined by Angolan domestic legislation.

Tax residents are taxed on worldwide profits, while PEs are liable to taxation on the profits attributable to the PE, sales in Angola of goods or merchandise of the same or a similar kind to that sold by the PE, and to any other business activity that is of the same or similar kind to that conducted by the PE.

There are two CIT payer groups:

• Group A: Public companies, private companies with a share capital above 2 million Angola kwanza (AOA), private companies with annual profits above AOA 500 million, and branches of foreign companies.

• Group B: Taxpayers not included in group A.

Special tax regimes apply to the oil and gas industry and to the mining industry.

Exemptions from CIT are provided for non-resident shipping and airline operators (as long as reciprocity exists in the foreign jurisdiction).

Investment income tax (Imposto sobre a Aplicação de Capitais or IAC)The IAC is due on interest, dividends, royalties, and other income of a similar nature. In Angola, the IAC Code divides such income into two sections, as follows:

Section ASection A includes:

PwC Worldwide Tax SummariesAngola15

Angola

• Interest on credit facilities.• Interest on loans.• Income derived from deferred payments.

The tax is due at the moment that the income starts to be due or is presumed to be due.

A minimum annual interest rate of 6% is deemed on loan agreements and credit facilities, except if another rate is proven through a written and stamped contract.

Section BSection B includes (amongst others):

• Dividends.• Repatriation of profits attributable to PEs.• Interest, premiums on the amortisation, reimbursement, and other forms of

remuneration of: (i) bonds and securities or other financial instruments issued by any company, (ii) treasury bills and treasury bonds, and (iii) Central Bank Securities.

• Interest on shareholder loans (or other shareholder financing). A deemed minimum annual interest rate equal to the rate used by the commercial banks is imposed.

• Indemnities paid to entities for the suspension of their business activity.• Capital gains on shares and other financial investments.• Royalties.

The concept of royalties includes payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment or for information concerning industrial, commercial, or scientific experience.

ExemptionsThe following income is exempt from IAC:

• Interest on deferred payments regarding commercial transactions.• Payment of dividends to Angolan CIT payers that hold a participation higher than

25% for more than one year.• Interest from financial products approved by the Ministry of Finance that intend to

encourage savings, capped to capital invested of AOA 500,000 for each person.• Interest from housing saving accounts intended to encourage savings for main

permanent dwelling.

IAC rateThe IAC rate is 15%, except for certain income, for which the rate is 10% or 5%.

The tax rate is 10% for the following income (amongst others):

• Dividends and repatriation of profits.• Bond interest.• Interest from shareholder loans.• Capital gains.• Royalties.


Angola

The tax rate is 5% for the following income (amongst others):

• Interest and capital gains on bonds, securities, or other financial instruments issued by any company, Treasury Bills and Treasury Bonds, and Central Bank Securities, when these instruments are traded on a regulated market and have a maturity equal to or in excess of three years.

• Dividends and capital gains on shares when traded in a regulated market.

Assessment and paymentGenerally, for section B, the IAC is withheld by the payer entity.

On Section A, the IAC is paid and assessed by the receiving entity, through the filing of a tax return in January of the following year the tax relates to. If the income is paid to a foreign entity, then the obligation shifts to the Angolan resident paying entity.

Local income taxesThere are no provincial or local taxes on income in Angola.

Corporate residence

Business entities with a head office or effective management in Angola are considered resident entities and are taxed on worldwide income.

Permanent establishment (PE)Angola has not signed any double tax treaties (DTTs); consequently, its domestic tax provisions apply with regards to PE.

The Angolan concept of tax PE is inspired in the United Nations (UN) Double Tax Treaty Model. A foreign entity is deemed to create a PE in Angola if it:

• has a branch, an office, or place of management in Angola• has a construction or installation site, or provides supervision over such site, only

when such site or activities exceed a period of 90 days in any given 12-month period, or

• carries out services in Angola, including consulting, acting through employees or other personnel contracted for that end, when such services are provided for a period of at least 90 days in any given period of 12 months.

Other taxes

Consumption taxConsumption tax is due on imported or locally produced goods at rates varying from 2% up to 80%. The consumption tax is also due on some services, as follows:

Type of service Consumption tax rate (%)Hotel services and similar services 10Services relating to electronic communications and telecommunications, regardless of its nature

5

Water supply 5Electricity supply 5Lease of areas designated for collection and parking of vehicles 5


Angola

Type of service Consumption tax rate (%)Leasing of machinery and other equipment, if not subject to the IAC 5Leasing of areas used for conferences, colloquiums, seminars, exhibitions, showrooms, advertising, or other events

5

Consultancy services, namely legal, tax, financial, accounting, audit, information technology (IT), engineering, architecture, economic, and real estate

5

Photographic services, film processing and imaging, IT services, and construction of web sites

5

Private security services 5Tourism and travel services promoted by travel agencies or equivalent tour operators

5

Canteen, cafeteria, dormitory, real estate, and condominium management services

5

Car rental 5

Assessment and paymentThe consumption tax is assessed by:

• The manufacturers, in the case of goods produced in Angola.• Custom services, in the case of imports.• The service provider, in the case of services liable to tax. However, if the service

providers are non-resident entities in Angola, the obligation will revert to the resident acquiring entity.

Service providers are exempt from consumption tax if the services are provided to oil and gas companies, under certain conditions.

The consumption tax amount supported by oil and gas companies is deductible for petroleum income tax purposes.

Customs dutiesCustoms duties are levied on imports at ad valorem rates varying from 2% to 50% and consumption tax at ad valorem rates varying from 2% to 80%. The range of taxation for both consumption tax and import duties varies according to the type of goods. The rates are set out in the tariff book.

Listed equipment may be imported temporarily, if a bank guarantee is provided.

A 1% stamp duty is also due on importation plus customs fees (from 2%).

A special exemption regime applies for the oil industry for some listed equipment.

Stamp taxStamp tax is payable on a wide variety of transactions and documents, at specific amounts or at a percentage based on value.

Important examples include:

Type of operations Stamp tax ratesOn receipts:

Stamp tax on receipts (in cash or in kind). 1%


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Type of operations Stamp tax ratesFinancing operations:

Stamp tax is applicable to the use of credit in general at rates depending on the period.

Period less than or equal to one year: 0.5%

Period greater than one year: 0.4%

Period greater than or equal to five years: 0.3%

Period not determined (e.g. current account), per month by

the monthly average of the debt: 0.1%

Real estate operations:Stamp tax is due on the acquisition for consideration of property.

0.3%

Stamp tax is also due on letting and sub-letting, as well as on financial leasing of real estate, except when the leasing is for a permanent dwelling, which is exempt from stamp tax.

Commercial purposes: 0.4%

Residential purposes: 0.1%

Corporate acts:Stamp tax is due on the initial or increase of share capital, whether made in cash or in kind.

0.1%

Insurance:Insurance provided by national companies is subject to stamp tax. The tax is settled by the insurance company, and the cost is recharged to the insured person. The commissions generated in the insurance mediation business are also subject to stamp tax.

Premiums and commission related to life insurance products, insurance against accidents at work, health insurance, and agricultural processing and livestock insurance are exempt from stamp tax.

The stamp tax applies on the amount of premium paid, and rates may vary from 0.1% to

0.3%, depending on the policy’s nature.

Commissions for mediation are subject to stamp tax at a rate of

0.4%.Other operations:

In addition to the operations referred to above, stamp tax is also applicable to written agreements, financial and operational leasing in tangible assets, customs operations, cheques, lending, civil deposits, gambling, licences, traders’ books, deeds, report, credit bonds, and transfer of business, among other acts.

Rates vary depending on the nature of the transaction.

The following exemptions apply:

• Credit granted for a period of up to a maximum of five days, micro-credit, credit related to young accounts and old age accounts and others of a similar nature that does not exceed the amount of AOA 17,600 each month.

• Credit derived from credit card utilisation, when the reimbursement is made free of interest, according to the terms of the contract.

• Credits related with exportation, when duly documented with the respective customs clearance.

• Amounts due on the mortgage for the acquisition of a permanent dwelling.• On interest and commissions charged on financial operations, such as young

accounts, old age accounts, and credits related to export under the terms mentioned above.

• Interest from Treasury Bonds and Angolan Central Bank notes.• Commissions charged for subscriptions, deposit and withdrawal from units of

investment funds, as well as the charges from pension funds.


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• Commission charged on the opening and utilisation of saving accounts.• Credit operations (including interest) for periods not exceeding one year, provided

these are obtained exclusively to cover treasury needs, when realised between shareholders and entities in which a direct capital shareholding not lower than 10% is held and which has remained in their ownership for a year (consecutively), or since the incorporation of the respective entity.

• Loans bearing the characteristics of shareholder loans, including the respective interest, made by shareholders to the company in respect of which an initial period not shorter than one year is stated and no reimbursement is occurred before the end of that period.

• Treasury management operations carried out between companies within the same group.

• The exemption foreseen for the reporting of securities or equivalent rights includes other financial instruments negotiated on the regulated market.

• Sale of negotiable securities.• Transfer of real estate (under a merger, demerger, or incorporation operations if

approved by the tax authorities).• Employment contracts.• Exports, except for the export of products listed in the Stamp Tax Code table.• Insurance premiums and commissions related to life insurance, work accidents,

health, and agriculture and livestock insurance products.

Real estate income tax (IPU)IPU is levied on rental income earned by individuals or companies owning real estate assets. It is based on actual rental income when the assets are leased and on the assets’ registered value when the assets are not leased.

Leased assetsIPU is levied on rental income at a 25% nominal rate. However, the tax basis is only 60% of the rental income, as it is presumed that 40% relates to costs. Consequently, the effective IPU rate for rental income is 15%.

Assets that are not leasedIPU is levied as follows for the ownership of assets that are not leased:

Patrimonial value (AOA) IPU rate (%)Up to 5 million 0Over 5 million (on the excess) (1) 0.5

Notes

1. For example, an asset registered at AOA 35 million will pay IPU only on AOA 30 million, resulting in an IPU payable of AOA 150,000.

ExemptionsThe following entities are exempt from IPU:

• State public entities and associations that are granted with the public utility statute.• Property of Embassies or Consulates of foreign countries, provided there is

reciprocity.• Religious temples.


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PaymentRents paid by Angolan companies or individuals that carry out a commercial activity are subject to withholding tax (WHT) of 15%. The IPU so withheld must be paid to the tax authorities by the end of the following month.

For property not leased, the respective owners must pay the IPU in January and July of the following year. The payment in four instalments (January, April, July, and October) is possible if approved by the tax authorities.

Filing requirementsIPU Model 1 must be filed by IPU taxpayers each January, disclosing the rents effectively received in the previous year, distinguishing the leases agreed and received.

Real estate transfer tax (SISA)SISA is levied at a 2% rate for all acts that involve the transfer for consideration of property.

The taxable basis is the higher of (i) the selling price or (ii) the property value registered for tax purposes.

The following entities are exempt from SISA:

• State public entities and associations that are granted with the public utility statute.• Property of Embassies or Consulates of foreign countries, provided there is

reciprocity.• Religious temples.

Payroll taxes

Employment income tax (IRT)Resident and non-resident individuals earning income from employment sourced in Angola (if paid for or borne by an Angolan employer) are subject to monthly taxation (IRT) at rates progressing from 0% to 17%. Angola operates a fairly straightforward pay-as-you-earn (PAYE) system, in which the Angolan employer withholds monthly from each employee’s gross compensation the Angolan income tax.

Individuals do not file tax returns, as the employment income tax is withheld at source by their employer.

Social security contributionsSocial security contributions are due on the gross income of employees at rates of 3% for the employee and 8% for the employer.

The contributions are intended to cover family, pension, and unemployment protection.

Special contributionThe Special Contribution is levied on payments due to non-residents under Foreign Technical Assistance and Management Contracts governed by the Presidential Decree 273/11.

This regime introduces restrictions on the payment for technical assistance and management services to foreign entities, particularly by imposing a special contribution


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of 10% on the amount of the transfer due by the entity requesting the transfer of funds abroad.

This regime applies to both private and public companies. Petroleum activities are not liable to the special contribution.

Branch income

The repatriation of profits attributable to PEs of non-resident companies in Angola (e.g. branches of foreign entities) is taxable under the IAC at the rate of 10%.


Inventory valuationInventory is valued at the historic acquisition cost. Any other method of valuation needs to be approved by the tax authorities.

Capital gainsCapital gains on fixed assets are taxed under CIT with no tax adjustments.

Capital gains arising from the disposal of shares, bonds, securities, or other financial instruments, Treasury Bills and Bonds, as well as Central Bank Securities, are taxable under the IAC Code.

Dividend incomeDividend income is only taxed under the IAC.

Interest incomeInterest income is only taxed under the IAC.

Rental incomeRental income on immovable property is only taxed under the IPU.

Royalty incomeRoyalty income is only taxed under the IAC.

Foreign incomeAn Angolan resident CIT payer is taxed on its worldwide income. No foreign tax credits are available to deduct against domestic tax.

No tax deferral provisions exist in Angola.

Deductions

DepreciationDepreciation should be computed using the straight-line method; any other method must be approved by the tax authorities.

The tax depreciation rates should respect the limits imposed by Presidential Decree no. 207/15, of 5 November.


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The table below summarises some examples of the depreciation tax rates.

Type of asset Rate (%)Office buildings 4Industrial buildings 4Computers 33.33Furniture Between 12.5% and 25%Software 20Light passenger vehicles 25Start-up expenses 20

Depreciation that is non-deductible for CIT purposes, for exceeding the maximum depreciation rate, may be deducted in subsequent periods, provided the respective accounting adjustments is made.

An intensive operating regime is foreseen allowing accelerated depreciations. The depreciation rate can be increased by 25% in the case of production on two shifts and by 50% in the case of continuous production.

GoodwillGoodwill is not deductible for CIT purposes.

Interest expensesInterest costs are deductible for CIT purposes, except the interest on shareholder loans or other shareholder funds.

Bad debtWrite-off of bad debts may only be deducted for CIT purposes to the extent they result from the execution, bankruptcy, or insolvency of the debtor and they are duly supported with public certificates.

ProvisionsThe following provisions are accepted as tax deductible:

• Those related to contingencies and liabilities resulting from lawsuits for facts that would determine their inclusion as costs deductible for tax purposes.

• Those related to bad debts, when the risk of non-recovery is considered to be justified, and subject to certain tax limits.

• Those related to inventory depreciation within certain tax limits.• Those respecting the limits and rules imposed by the Insurance Supervision Institute

for insurance companies, as well as the Central Bank for Financial Institutions.

In relation to doubtful debts, the regime:

• Limits the provision’s deductibility to credits in which the risk of collection is considered duly justified. According to the tax law, the recovery risk is justified whenever:• The debtor is in insolvency, recovery proceedings, and enforcement procedure.• The credit was claimed in court.• The credit is overdue for more than six months and there is proof of collection

diligences.


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• Excludes from tax deductibility the provisions of credits covered by insurance, over shareholders and subsidiaries (at least 10% share), and over the state and public companies.

In relation to the losses incurred with inventories, the regime:

• Foresees different tax limits, depending on the sector of activity.• Imposes that the provision is calculated by the difference between the stock’s market

price and its acquisition cost.• Foresees a special regime for taxpayers engaged in editorial activities.

Charitable contributionsDonations are only deductible for CIT purposes if fully compliant with the Patronage Law. The requirements imposed by this law are very restrictive.

Fines and penaltiesFines and penalties are not accepted for tax purposes.

TaxesIndirect taxes are deductible for CIT purposes. Direct taxes are non-deductible, namely the CIT itself, IRT, IAC, IPU, or taxes paid on behalf of third parties (e.g. social security contribution and IRT supported on behalf of the employees).

Net operating lossesTax losses can be carried forward for three years.

Carryback of losses is not allowed.

Payments to foreign affiliatesPayments to foreign affiliates are accepted for tax purposes, although the arm’s-length principle should be complied with.

Group taxation

Major taxpayers that are members of an economic group may opt to be taxed under the tax regime of group taxation.

The option for the group taxation regime is available when:

• The company is included in the major taxpayers list.• The parent company holds, directly or indirectly, at least 90% of the share capital of

other companies (controlled entities), and more than 50% of the voting rights.

Some limitations apply and the option to apply group taxation depends on the approval of the tax authorities.

Transfer pricingUnder a special regime for ‘so called’ major taxpayers, being the ones identified in a list published by the Ministry of Finance, there are additional specific reporting and administrative obligations, namely the obligation of audited accounts and to prepare special transfer pricing documentation (e.g. the same will have to, under certain requisites, organise their transfer pricing documentation and submit it to the tax


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authorities). This is applicable to those major taxpayers that have registered annual profits higher than 70 million United States dollars (USD).

Thin capitalisationThere are no thin capitalisation rules in Angola.

Controlled foreign companies (CFCs)There are no CFC rules in Angola.


Foreign tax creditNo foreign tax credits are available to deduct against domestic tax.

Private Investment LawThe implementation of investment projects in Angola in the amount equivalent to USD 1 million (for foreign investments) and USD 500,000 (for internal investments) may benefit from tax incentives for CIT, IAC, and SISA.

The extent of the incentives (tax rate reduction and period of the incentive) depends on several variables, such as the creation of jobs for Angolan citizens, the investment amount, the investment location, the sector of the activity of the investment, the equity held by Angolan shareholders, and the value added to the national market.

In addition, for investment projects in an amount equal to or above of USD 50 million, special benefits can also be obtained under negotiation with the cabinet of the President of the Republic.

Special regulations also provide tax and customs incentives for investment projects in strategic economic development areas and sectors.

Reinvestment of reservesProfits retained and then reinvested in new installations or equipment during the following three financial years may be deductible from taxable income during the following three years after the investment is finalised, at up to 50% of the value reinvested.

Withholding taxes

WHT is applicable on payments of services (some exemptions apply) granted by resident and non-resident entities at the rate of 6.5%. For Angolan taxpayers, this is regarded as an advance CIT payment due at the year-end; the deduction of these WHTs against tax CIT payable is limited to a period of five years. For non-resident companies, this is a final tax.

Dividends, interest, and royalties are subject to WHT under IAC (see the Taxes on corporate income section for more information).


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Tax administration

Taxable periodThe tax year follows the calendar year.

Tax returnsThe annual CIT return for Group A and B must be submitted by the last business day of May and April, respectively, following the year to which the income relates.

Payment of taxTaxpayers from Groups A and B that record sales (granting of services subject to WHT are excluded) are required to make advance CIT payments until the end of August and July, respectively.

This tax is to be calculated by applying the rate of 2% on the total amount of sales recorded by the taxpayers in the first half of the tax year. Advance payments are offset against the final CIT assessed.

Advance payments made in excess may be deducted from subsequent advance payments up to the statute of limitation period of five years.

The final tax must be settled by the last business day of the month of April (Group B) and May (Group A) of the following year.

Tax audit processThe tax authorities may carry out tax audits to the monthly and annual tax returns.

Taxpayers may challenge any decision and file an appeal to the Chief of the respective Tax Office within 15 days upon receiving the tax notification.

Based on an unsatisfactory decision of the Chief of the Tax Office, the taxpayer may also file a hierarchical appeal addressed to the National Director of Taxes (DNI) within 15 days upon receiving the tax notification.

The taxpayer still has the right to appeal against the final decision of the DNI in court within 60 days upon receiving the final decision from the DNI.

Statute of limitationsThe statute of limitations in Angola is five years.

Topics of focus for tax authoritiesThe main areas of focus of the tax authorities relate to:

• WHTs due (regarding several taxes: CIT, IPU, IAC, and IRT).• 1% stamp tax on receipts.• Deductibility of costs for CIT purposes.• Transfer pricing.

Legal regime on invoices and similar documentsInvoices or similar documents must comply with the legal regime of invoices and similar documents (governed by the Presidential Decree 149/13).

Invoices and similar documents must comply with the following requirements (amongst other):


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• Include the name, firm, tax address, and tax number of the supplier.• Be duly dated, sequentially numbered.• Include details on the nature, quantity, and price of the goods and services, as well

as the taxes due.• Be written in Portuguese and expressly mention that they were computer processed.

Suppliers that do not comply with this regime will be subject to fines and penalties. In addition, the acquiring entities cannot deduct the cost for CIT purposes and will be subject to an autonomous taxation on an amount that varies depending on the extent of the failure.

Other issues

Intergovernmental agreements (IGAs)An agreement under the Foreign Account Tax Compliance Act (FATCA), between the government of Angola and the government of the United States (US), was signed on 9 November 2015. This FATCA regime aims to fight tax evasion of US taxable persons who hold financial assets through financial institutions outside the US territory.

Botswana 27www.pwc.com/taxsummaries

Botswana

PwC contact

Butler PhiriePricewaterhouseCoopersPlot 50371Fairground Office ParkGaboroneBotswanaTel: +267 395 2011Email: [email protected]


There have been no significant corporate tax developments in Botswana during the past year.


Botswana has a source-based taxation system.

Corporate income tax (CIT) is charged at a single flat rate of 22%. Manufacturing companies having the approval from the Minister of Finance for a special tax rate will be charged at the rate of 15%.

International Financial Services Centre (IFSC) profitsIFSC companies are currently taxed at a flat rate of 15%. Companies must apply for a certificate to be classified as IFSC companies, which deal only in specified services and only with non-residents.

Mining profitsMining profits, other than profits from diamond mining, are taxed according to the following formula:

Annual tax rate = 70 minus (1,500/x), where x is taxable income as a percentage of gross income.

The tax rate shall not be less than the flat CIT rate of 22%.

Diamond miningDiamond mining is usually taxed in terms of an agreement with the government of Botswana.

Local income taxesThere are no local, state, or provincial government taxes on income in Botswana.

Corporate residence

If a company’s registered office or place of incorporation is in Botswana or if the company is managed and controlled in Botswana, then the company is considered a resident of Botswana.

PwC Worldwide Tax SummariesBotswana28

Botswana

Permanent establishment (PE)PE has been defined in the Income Tax Act only in the limited context of interest, commercial royalty, and management or consultancy fee. However, PE is defined in all the double taxation agreements (DTAs) that Botswana has entered into with other contracting states. The definition of PE in the DTA follows the definition in the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and Capital.

Other taxes

Value-added tax (VAT)VAT is imposed on taxable supplies and the importation of goods into Botswana. The standard VAT rate of 12% applies to all supplies that do not qualify for an exemption or are not zero-rated.

The VAT registration threshold is 1 million Botswana pula (BWP).

Vocational training levy (VTL)VTL is payable when submitting the VAT return by every taxpayer who is registered for VAT. It is calculated as a percentage of turnover ranging from 0.2% to 0.05%, depending on the turnover of the company.

Customs and excise dutiesCustoms and excise duties are charged on importation of goods (including currencies) into or exported out of Botswana. The import duties may also include anti-dumping and countervailing duties. No customs duties and excise duties are charged on trade between Botswana and South Africa, Lesotho, Namibia, and Swaziland, as these five countries constitute a Southern African Customs Union. In terms of the Botswana/Zimbabwe Trade Agreement, goods originating from either of the trading partners are exempted from payment of customs duties under the condition that the goods meet a minimum of 25% local content. Excise duty and local taxes, such as VAT, are due and payable where applicable.

Property taxesThere are no property taxes in Botswana.

Capital transfer tax (CTT)CTT is levied on the donee upon the transfer (by way of inheritance or gratuitous disposal of property) of tangible or intangible, movable or immovable, property, at 12.5%.

Transfer duties on immovable propertyTransfer duty is levied at 5% of the value of immovable freehold and leasehold property. The first BWP 200,000 of such value are exempt from transfer duty in case of transfer to a Botswana citizen.

In the case of agricultural property, transfer duty is levied at the rate of 30% for a non-citizen. This duty is 5% in the case of a Botswana citizen.

Stamp dutyThere is no stamp duty in Botswana.


Botswana

Payroll taxesAn employer with resident employees earning income above the taxable threshold and non-resident employees must deduct tax by applying the relevant tax rate and remit to the Botswana Unified Revenue Services (BURS) on a monthly basis before the 15th day of the succeeding month. Every employer is required to submit an annual return within 31 days after the end of the tax year.

Social security contributionsThere are no social security taxes or contributions in Botswana.

Branch income

CIT payable on branch profits is 30%.


Inventory valuationInventories are valued at cost less such amounts, if any, that the Commissioner General believes are reasonable as representing the amount by which the value of such stock has been diminished because of damage, deterioration, obsolescence, or other cause. Although not expressly excluded by legislation, last in first out (LIFO) has not been accepted in practice by the tax authorities.

Capital gainsGains from disposal of specified capital assets (immovable property and marketable securities, including shares in private companies) are included in taxable income in the hands of the corporate taxpayer. Acquisition costs of immovable property are subject to a 10% compound annual addition for inflation for the period from acquisition to 30 June 1982, and thereafter to an inflation addition based on the increase in the consumer price index to the date of sale. For other gains, no inflation allowances are granted, but the taxable gain is set at 75% of the total gain.

Currently, the sale of any shares, units, or debentures of a resident company is exempt from tax under any of the following circumstances:

• The resident company whose shares are being sold is a public company.• The shares, units, or debentures are traded on the Botswana Stock Exchange.• The company has released for trading 49% or more of its equity on the Botswana

Stock Exchange.

This exemption only applies if the shares, units, or debentures were held by the taxpayer for a period of at least one year prior to the date of disposal.

The aggregate amount of capital losses is offset against the aggregate amount of capital gains in the same tax year. Any excess of loss is deducted from aggregate gains over losses accruing in the succeeding tax year only. Capital losses cannot, in any circumstances, be deducted against other income.

Dividend incomeDividend income from local sources is not subject to tax.


Botswana

Interest incomeIn the case of a resident company, interest income is included in gross income and taxed at the CIT rate. In the case of a non-resident company, interest income is subject to withholding tax (WHT), which constitutes a final tax.

Royalty incomeRoyalty income is included in gross income and taxed at the CIT rate. In the case of a non-resident company, royalty income is subject to WHT, which constitutes a final tax.

Partnership incomePartnership income is taxed in the hands of the partners, in proportion to their share in the partnership.

Foreign incomeResident corporations are not generally taxed on a worldwide income basis. However, interest and dividend income from a foreign source is taxed in the hands of the resident company on an accrual basis. Relief is given for any WHT imposed on such income.

Deductions

Depreciation and depletionAnnual and capital allowances available are as follows.

Companies other than mining companiesAnnual taxation allowances for expenditures incurred on machinery and equipment before 30 June 1982 can be claimed up to 100%. This allowance may be for any proportion of previously unclaimed expenditures. For expenditures incurred on machinery and equipment after 30 June 1982, annual allowances are granted, calculated on cost by the straight-line method on the basis of the expected useful lives of the individual assets. Guidelines are provided for expected useful lives of different categories of assets, which vary from four to ten years. Book depreciation is not required to conform to tax depreciation. The capital allowance claimable on a company motorcar is restricted to a maximum of BWP 175,000.

An initial allowance of 25% of cost is granted on certain industrial buildings. All industrial and commercial buildings (excluding residential properties) are granted a 2.5% annual allowance based on cost or, in the case of an industrial building on which an initial allowance has been claimed, the original cost less the initial allowance.

Balancing allowances and charges are brought to account on the disposal of assets on which allowances have been claimed. Where disposal value of an item of machinery or equipment exceeds the difference between expenditures incurred on the asset and allowances granted, the whole amount is taxable as corporate income or the balancing charge can be offset against further additions of new equipment, thus providing rollover relief. However, there is no rollover relief on motorcars except where the cars are used in a car rental or taxi service business.

Mining companiesIn ascertaining the business income for any tax year from a mining business, there shall be deducted from business income an allowance, to be known as a mining capital allowance, computed in accordance with 100% of the mining capital expenditure made


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in the year in which such expenditure was incurred, with unlimited carryforward of losses.

GoodwillAmortisation of goodwill is not allowed as a tax deductible expense.

Start-up expensesStart-up expenses are not specified in the law. However, pre-incorporation expenses might be disallowed since, generally, expenses incurred when there is no income are not allowed.

Interest expensesInterest paid or accrued to a resident is deductible as an expense. Interest paid to a non-resident will be allowed as a deduction in the year where the relevant WHT on interest has been remitted to the BURS.

Bad debtBad debts written off and specific provisions for bad debt are allowed as a deduction when computing taxable income. General provisions are not allowed as a deduction.

Charitable contributionsDonations made to (i) any educational institution recommended by the Ministry of Education or (ii) any sports clubs or sports associations recommended by the Ministry responsible for sports, and approved by the Commissioner General, shall be deducted when arriving at taxable income, limited to 20% of the chargeable income.

Fines and penaltiesPenalties and associated interest are not allowed as a deduction.

TaxesAny taxes paid are specifically disallowed in computing a company’s taxable income.

Other significant itemsAn allowance is granted for dwelling houses erected for employees by a business other than a mining business. The amount of the allowance is the lower of cost or BWP 25,000 for each dwelling house constructed.

A deduction of 200% of the cost of an approved training expenditure is allowed.

Companies with shareholders having 5% or more of equity, either directly or indirectly, are classified as close companies, and there are additional tax regulations in respect of these shareholders.

Small companies, that is resident private companies whose gross income does not exceed BWP 300,000, may elect that the company be taxed as a partnership.

Expenses incurred by the company for having its shares listed on the Botswana Stock Exchange are deductible in determining the chargeable income of the company.

Net operating lossesLosses may be carried forward for five years, with the exception of mining and prospecting operations, for which there is no time limit. There is no allowance for carrybacks.


Botswana

Payments to foreign affiliatesRoyalties, interest, and service fees paid to foreign affiliates are generally deductible, provided such amounts are at arm’s length and WHT is paid.

In the case of a mining company, head office expenses allowed as a deduction in ascertaining gross revenue from mineral licence shall be limited to 1.5% of gross income for the year of assessment, and any excess of such expense above the limit shall be treated and taxed as a dividend.

Where the interest rate on a loan made by a foreign-based mining company to an affiliate mining company resident in Botswana is considered by the commissioner to be in excess of the market rate, such excess will be disallowed as a deduction and taxed as a dividend.

Group taxation

There are no concessions for group taxation, other than for wholly-owned subsidiary companies of the Botswana Development Corporation Limited (BDC).

BDC was established in 1970 to be the country’s main agency for commercial and industrial development. The government of Botswana owns 100% of the issued share capital of the Corporation.

Where in any tax year a wholly owned subsidiary of BDC has incurred any assessed loss, such member may, during the current tax year, by notice in writing to the Commissioner General, elect that the whole or part of such assessed loss shall be deducted in ascertaining the chargeable income of one or more of the other wholly owned subsidiaries.

Transfer pricingBotswana currently does not have any transfer pricing regulations, so transfer pricing is currently monitored through the anti-avoidance provisions contained in Section 36 of the Income Tax Act.

The arm’s-length principle should always be followed in transactions between related parties. If such transactions have created rights or obligations that would not normally be created between independent persons dealing at arm’s length, the Commissioner General may determine the liability in such manner as deemed appropriate. However, related party balances arising out of normal trading transactions (e.g. credit purchases with a 30 day credit period) would not be subjected to these provisions.

Interest (at prime rate) should be charged/provided on loans from shareholders/amounts due to related parties. If no interest has been charged/provided, in terms of the close company legislation, the BURS may deem interest at the prime rate prevailing at the beginning of the tax year, as income in the hands of the lender without allowing the corresponding interest as a charge against the profits of the borrower. The borrower is obligated to deduct WHT at the prevailing rate on the deemed interest.

Amounts due from shareholders/directors may be deemed as dividend income and shall form part of the taxable income of the borrower, in which event these will be taxed at the prevailing dividend WHT rate in the hands of the borrower.


Botswana

Thin capitalisationThin capitalisation rules can be found in the Income Tax Act, but only in relation to mining companies and IFSC companies.

Where a foreign controlled resident mining company has a foreign debt-to-equity ratio in excess of 3:1 at any time during the year of assessment, the amount of interest paid by the resident company during that year on that part of the debt that exceeds the ratio shall be disallowed as a deduction, and the amount so disallowed shall be treated and taxed as a dividend.

In case of an IFSC company, where an amount of foreign debt interest is allowable as a deduction in a particular tax year and, at any time during that tax year, the total foreign debt exceeds the foreign equity product for that year, then the amount of foreign debt interest ascertained in accordance with the following formula will be disallowed:

I x (A/B) x (C/365)

A = amount of the excess of the total foreign debt over the foreign equity product.

B = the total foreign debt.

C = the number of days in that tax year during which the total foreign debt exceeded the foreign equity product by that amount.

I = the foreign debt interest.

Controlled foreign companies (CFCs)There are no CFC rules in Botswana.


To encourage investment in Botswana, extra tax relief on revenue or capital accounts will be granted for specific business development projects if the government is satisfied that such projects are beneficial to Botswana.

Foreign tax creditA credit for the foreign WHT payable is permitted under domestic law. The credit, which is offset against the tax charged in Botswana, shall be the lessor of (i) the tax payable in the foreign country or (ii) the tax charged under the Botswana Income Tax Act on such amount.

Withholding taxes

WHT, at the following rates, must be deducted from payments to residents and non-residents unless a DTA exists.

Residents WHT rate (%)Dividends 7.5Interest 10Payments due under certain construction contracts 3


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Residents WHT rate (%)Payments made for livestock purchased for purposes of slaughter or feeding for slaughter

4

Non-residents WHT rate (%)Dividends 7.5Interest 15Payments due under certain construction contracts 3Payments made for livestock purchased for purposes of slaughter or feeding for slaughter

4

Payments for royalties, management, or consultancy fees 15Payments for entertainment fees 10

All rent and commission or brokerage payments to residents or non-residents are subject to WHT at 5% and 10%, respectively, where the total payment is BWP 36,000 per annum or more or the monthly payment is BWP 3,000 or more.

Botswana has tax agreements with the following countries, which provide for WHT at the rates shown.

Recipient Dividends (%) Interest (%) Royalties (%)Management and

consultancy fees (%)Barbados 5/7.5 (1) 10 10 10France 5/7.5 (1) 10 10 7.5India 7.5 10 10 10Mauritius 5/7.5 (1) 12 12.5 15Namibia 7.5 10 10 15Russia 5/7.5 (1) 10 10 10Seychelles 5/7.5 (1) 7.5 10 10South Africa 7.5 10 10 10Sweden 7.5 15 15 15United Kingdom 5/7.5 (1) 10 10 7.5Zambia 5/7 (1) 10 10 10Zimbabwe 5/7.5 (1) 10 10 10

Notes

1. 5% rate of WHT is applicable if the beneficial shareholder is a company resident in the DTA country and holds at least 25% of the share capital in the company paying dividends. Otherwise, the other rate applies.

Tax administration

Taxable periodBotswana has a fiscal year ending on 30 June. However, a business may select its own accounting year, which may end on a date other than 30 June. This accounting year is accepted for the computation of the company’s taxable income.

Tax returnsBotswana requires self-assessment, which means that the return submitted constitutes the assessment. The system is one that requires all taxpayers to file tax returns in standard format (providing information relating to taxable income earned) within four months after the financial year-end of the company.


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Payment of taxUnder the self-assessment tax procedures, if the tax payable for a tax year exceeds BWP 50,000, then estimated tax is required to be paid in equal quarterly instalments over the period of 12 months ending on the company’s financial year-end date. Accordingly, the first quarterly payment should be made within three months of the beginning of the financial year and the balance quarterly payments at three monthly intervals thereafter. The final (balance) payment, if any, is to be made within four months from the end of the financial year, when submitting the return.

Where the tax is less than BWP 50,000, then the tax is payable within four months from the company’s financial year-end date.

Tax audit processThere is no prescribed audit process, and an audit can be initiated by any factor as determined by the BURS. The audit or inspection will commence with a request from the BURS for the taxpayer to make available any such records or information as may be required.

Statute of limitationsThe assessment should be made any time prior to the expiry of four years after the end of the tax year to which it relates to. Tax returns submitted that have been assessed may not be reopened after a period of four years from date of assessment by the BURS.

Topics of focus for tax authoritiesThe BURS is focusing on establishing and strengthening the Large Tax Payers Unit, minimising the tax gap, and introducing electronic filing.

Cabo Verde 36www.pwc.com/taxsummaries

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PwC contact

Leendert VerschoorPricewaterhouseCoopers & Associados - SROC, Lda.Palácio SottomayorRua Sousa Martins 1 - 3º1069-316 LisboaPortugalTel: +351 213 599 642Email: [email protected]


State Budget for 2017Law Nr. 5/IX/2016, of 30 December 2016, which approves the State Budget for 2017, has been published. The State Budget for 2017 amends and republishes:

• Law Nr. 70/VIII/2014, of 26 August, which regulates the special regime for micro and small enterprises.

• Law Nr. 26/VIII/2013, of 6 January, which approves the Benefit Tax Code.• Law Nr. 78/VIII/2014, of 31 December, which approves the Personal Income Tax

Code.• Law Nr. 82/VIII/2015, of 8 January, which approves the Corporate Income Tax

Code.• Law Nr. 33/VIII/ 2008, of 8 December, which approves the Stamp Duty Code.

Annual StatementDecree Nr. 9/2017, of 20 March, approves the annual statement form, regarding the tax periods started after 1 January 2015.

According to the Decree, taxpayers must submit the annual statement until 30 July of the year following the end of the tax year.

The annual statement throughout its various annexes centralises information of accounting and fiscal origin, including information on the matter of transfer prices, impairments, and tax benefits.

The annual statement shall be submitted electronically. For the purpose of filing the annual statement, taxpayers must register at portondinosilha.cv.


Cabo Verde’s corporate income tax (CIT), called Imposto sobre o Rendimento das Pessoas Colectivas, is levied both on profits obtained within the Cabo Verdean territory and those obtained outside by resident companies (worldwide principle). Non-resident companies with a permanent establishment (PE) in Cabo Verde are also subject to CIT on Cabo Verdean-source income attributable to the PE.

Taxable profit is computed according to the local accounting rules and adjusted for tax purposes.

https://portondinosilha.cv/

PwC Worldwide Tax SummariesCabo Verde37

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For the purposes of determining taxable income, CIT payers can be taxed under two methods/regimes as follows:

• Special regime for micro and small-sized companies:• Micro-sized company: An entity that employs up to five persons with an annual

turnover (gross amount of sales and services) that does not exceed 5 million Cabo Verdean escudos (CVE).

• Small-sized company: An entity that employs between six and ten persons with an annual turnover (gross amount of sales and services) of between CVE 5 million and CVE 10 million.

• Micro and small importers: Importers whose customs value of imported goods does not exceed the value of turnover on an annual basis for the purpose of qualifying under the simplified scheme for micro and small-sized companies.

• Standard organised accounting regime (standard/normal regime under which the computation of profits follows the local accounting rules).

Income tax ratesResident companies are subject to a tax rate of 25%, where taxable income corresponds to the profit less any tax benefits and any losses carried forward, as stated in the tax return. The tax rate of 25% is also applicable for PEs of non-resident companies.

Micro and small-sized companies are subject to a single special tax (SST) of 4% levied on the gross amount of sales obtained in each taxable year, to be paid quarterly. The SST replaces the CIT, fire brigade surtax, and value-added tax (VAT), as well as the contribution to social security attributable to the company.

Non-resident companies without a PE are subject to withholding tax (WHT) rates applicable for each income category foreseen in the Tax Code, which range between 1% and 20%.

SurchargeThe CIT rate is increased by a fire brigade surcharge, called Taxa de Incêndio, of 2% on the tax due, leading to a final tax rate of 25.5%. This surcharge is levied in the municipalities of Praia (Island of Santiago) and Mindelo (Island of São Vicente).

Corporate residence

A company or entity is deemed to be resident in Cabo Verde if its registered head office or its place of effective management is in the Cabo Verde territory.

Permanent establishment (PE)Non-resident companies deemed to have a PE in Cabo Verde are also subject to tax in Cabo Verde. Under Cabo Verdean tax law, a non-resident company is deemed to have a PE if the non-resident company:

• has any fixed installation or permanent representation located in Cabo Verde through which, among others, activities of a commercial, industrial, or agricultural nature, or fishing and rendering of services are carried out (including agricultural, fishing, and cattle raising explorations, or other quarries or any other places of natural resources extraction) or

• carries out its activity in Cabo Verde through:


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• employees, or any other personnel hired for that purpose, for a period (continuous or not) of not less than 183 days within a 12-month period

• a person (a dependent agent), which is not an independent agent, acting, in the Cabo Verde territory on behalf of a company, with powers to intermediate and conclude binding contracts for that company, within the scope of its business activity, or

• a building site or a construction installation if it lasts for more than 183 days, as well activities of coordination, supervision, and inspection related with the building site or its construction installation.

A PE of a non-resident is taxed as a resident company.

Other taxes

Value-added tax (VAT)The VAT system in Cabo Verde closely follows the European Union (EU) VAT system and is assessed at the standard rate of 15%.

The standard VAT rate of 15% is a general tax on consumption, applicable to the import and sale of goods and services in Cabo Verde territory.

The VAT rate will be applied on the following amount on the following supplies of goods and services:

• Diesel: 120%.• Fuel: 300%.• Petroleum: 30%.• Butane gas: 16.65%.• Fuel-oil: 30%.• Electricity: 30%.• Tap water from the public supply: 20%.• Telecommunication services: 60%.• Road passenger transport and transport of goods by sea: 15%.

The following transactions are considered to fall outside the scope of VAT:

• The transfer, for consideration or not, of a totality of assets or a part thereof that constitute an undertaking or a part of an undertaking capable of carrying on an independent economic activity.

• Indemnities for damages.• Repayment of expenditure incurred in the name and on behalf of a third party.

Exempt transactionsThe VAT regulations establish two types of exempt transactions: exempt transactions without credit and exempt transactions with credit (i.e. zero-rated transactions). VAT incurred is recoverable in as far as the goods and services are used for the purposes of the taxed transactions of a taxable person or for zero-rated transactions.

Exempt transactions without credit include the following:


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• Hospital and medical care and closely related activities undertaken by bodies governed by public law, or comparable activities undertaken by other hospitals and centres for medical treatment.

• The provision of medical care through the exercise of the medical and paramedical professions, as well as the supply of transport services for sick or injured persons, and the supply of human organs, blood, and milk.

• The supply of services and goods closely linked to welfare and social security work.• The supply of services and goods closely linked to the protection of children and

young people by bodies governed by public law.• The provision of children’s or young people’s education, school or university

education, including the supply of services and goods closely related thereto.• The supply of services, and goods closely linked thereto, by non-profit-making

organisations.• The supply of copyright and art objects by the original creators or their heirs.• The supply by the public postal services of stamps and stamped paper.• The supply of certain cultural, educational, technical, and recreational services.• Garbage removal.• Burial and cremation supplies.• Banking, financial, insurance, and reinsurance transactions, including related

services performed by insurance brokers and insurance agents.• Immovable property transactions (excluding the provision of accommodation in

the hotel sector or in sectors with a similar function, the granting of facilities for collective parking of vehicles, the leasing of permanently installed machinery and equipment, and the granting of facilities for exhibitions and advertising).

• Specified basic foodstuffs and pharmaceutical products.• Goods used in agriculture, stockbreeding, forestry, and fisheries.

Exempt transactions with credit (i.e. zero-rated transaction) on imports include the following:

• Import of goods whose supply qualifies for exemption.• Re-import of goods by the person who exported them, in the state in which they

were exported, where they qualify for exemption from customs duties.• Services in connection with the import of goods where the value of such services is

included in the taxable amount.• Import of gold by the central bank.• Import into ports by sea fishing undertakings of their catches, unprocessed or after

undergoing preservation for marketing but before being supplied.• Import of goods under diplomatic and consular arrangements that qualify for

exemption from customs duties.• Import of goods for the fuelling and provisioning of sea-going vessels and aircraft.

The most important exemptions with credit (i.e. zero-rated) for exports and connected transactions include the following:

• Supply, modification, repair, maintenance, chartering, and hiring of aircraft used by airlines operating both on domestic and international routes, and the supply, hiring, repair, and maintenance of equipment incorporated or used therein.

• The supply of goods for the fuelling and provisioning of such aircraft.• Services meeting the direct needs of such aircraft or their cargoes.


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Customs dutiesCustoms duties are levied at rates ranging from 0% to 50% on the customs value of most imported goods. Since Cabo Verde imports the majority of the goods it consumes, a 50% tariff protection applies for certain domestically produced goods.

Raw materials or capital goods can be imported with an exemption from customs duties or at a low rate.

Special consumption taxA special consumption tax is imposed at rates ranging from 10% to 150% on goods that are deemed superfluous, luxurious, or undesirable for economic, social, or environmental policy reasons.

The excise duty rate is 40% in the case of beers, wines, vermouths, and other alcoholic drinks, and 20% in the case of tobacco.

Vehicles used for transportation, up to 5 tons, are subject to rates of up to 150%, according to their age:

• Up to four years: not applicable.• More than four and up to six years: 40%.• More than six and up to ten years: 80%.• More than ten years: 150%.

Property taxesA property tax, called Imposto Único sobre o Património (IUP), is levied at the rate of 1.5% in Cabo Verde.

IUP is due on the ownership of immovable property on an annual basis by the owner of the real estate, registered as such on 31 December of the relevant year. The taxable basis corresponds to 25% of the value attributed by the Evaluation Commission.

IUP is also due on the transfer (gratuitously or for a consideration) of real estate, based on the value of the contract declared by the transferee.

Exemption of IUP due on the acquisition is granted to:

• Cabo Verdean emigrants who own saving bank accounts.• Projects with Touristic Utility Status (see the Tax credits and incentives section for more

information).

In taxable transfers (not exempt), IUP is payable by the transferee.

IUP is also due on the capital gains arising from the sale of:

• plots of land for construction if the sales price is more than double the purchase price, and

• buildings or other real estate if the sale price exceeds the purchase price by more than 30%.

IUP on capital gains is normally paid by the transferor, on the highest of the declared price and the official value of the property concerned.


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Capital gains obtained by companies that are in the business of buying real estate for resale are not subject to IUP.

Stamp dutyStamp duty is payable on a wide variety of transactions and documents, at rates that may be set in specific amounts or on a percentage basis.

Stamp duty rates:

Item Stamp duty rateLoans 0.5%Bank interest and fees/commissions 3.5%Guarantees 0.5%Insurance 3.5%Promissory notes, securities 0.5%Emoluments, registrations acts 15.0%Contracts CVE 1,000 *

* Fixed exchange rate 1 euro (EUR) = CVE 100.265 under an exchange agreement between Cabo Verde and Portugal.

Payroll taxes

Social security contributionsSocial security contributions are payable by the employee on their gross income at a rate of 8% and by the employer at 15%.

Ecologic chargeCabo Verde’s ecologic charge is applied to packing material, whether empty or full, imported or produced internally, non-biodegradable or made out of metal, glass, or plastic.

The ecologic charge varies from CVE 2 to CVE 100 per item, depending on the quantity or weight of the goods.

This fee is due by the local producer or the importer.

Exemptions are available in the case of packing material used in medicine, essential food (e.g. corn, rice, sugar, flour, and milk), and construction (e.g. cement). Packing material that is exported, reutilised, or recycled is also exempt.

Tourism taxA tourism tax is applied to accommodation in the hotel sector. The tax amounts to CVE 220 per person per night for people over 16 years of age and cannot exceed ten consecutive nights.

Branch income

A branch is not considered a separate legal entity distinct from the foreign head office. It is governed by the domestic law of Cabo Verde.

From a tax perspective, branches are subject to CIT if considered a PE under Cabo Verde law.


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Taxable income is computed on the basis of the accounting income, adjusted by deducting from taxable profits the prior years’ losses and any deductions under the tax (incentive) legislation.

Inventory valuationThe tax law does not foresee any mandatory inventory valuation method that should be adopted by Cabo Verdean taxpayers. For tax purposes, accepted inventory methods should be consistent with the accounting rules in force and with generally accepted local business practice. Such methods should be applied in a consistent manner over the financial years and based on the prices effectively paid or established by official documents (for regulated prices).

Capital gainsCapital gains are not subject to a separate capital gains tax and are treated and taxed as ordinary business income.

Capital gains and capital losses determined for tax purposes are usually different from capital gains and capital losses determined for accounting purposes and are quantified as follows:

Capital gains/losses = sales - (acquisition value - deductible accumulated depreciation - deductible impairment losses) x coefficient

The exemption on capital gains derived from disposal of shares when owned for more than one year was revoked.

Capital gains can be considered only in 50% of the respective amount if the sales proceeds are reinvested in the acquisition, production, or construction of tangible fixed assets, intangible assets, or non-consumable biological assets. For this purpose, the reinvestment must take place in the previous tax year, in the tax year in which the transfer occurs, or in the two tax years following the transfer.

In case of partial reinvestment, a partial relief (proportional to the investment made) will apply. In case the reinvestment is not fully accomplished during the reinvestment period, the difference (or the proportional difference) will be considered as taxable income of the second year following the disposal, increased by 15%.

Dividend incomeFrom 2017 onwards, the tax legislation foresees a full relief from taxation on profit distribution at the beneficiary level, without any requirements to be met by the entities involved, except for entities with a local CIT rate reduction, for which the tax relief is only 50%.

Interest incomeThere is no special tax provision regarding interest income. Interest income is treated and taxed as ordinary business income (excluding interest from bonds or similar products listed in the securities market).

Royalty incomeThe term ‘royalties’ is not defined as such in Cabo Verde’s principal tax law, but the relevant regulations define royalties as “income from intellectual, industrial copyrights,


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or from an experience acquired in an industrial, commercial, or scientific area, as well as income from technical assistance and from the use of commercial, industrial, or scientific equipment”.

Foreign incomeResident companies are subject to taxation on foreign income. Cabo Verdean tax law allows a foreign tax credit to mitigate the double taxation on foreign income taxed in another jurisdiction (see Foreign tax credit in the Tax credits and incentives section).

PEs of non-resident companies are taxable on a territorial base principle, meaning that income obtained outside Cabo Verde is not subject to taxation therein.

Deductions

DepreciationDepreciation is considered a deductible cost with respect to all fixed assets (except land), up to the limits determined by the applicable tax law.

As a general rule, depreciation must be computed by using the straight-line method. Tax authorities may allow other depreciation methods on the basis that the actual depreciation is higher than the one calculated at regular rates or according to the taxpayer’s accounting practice.

Under the straight-line method, the maximum depreciation that is deductible is calculated by applying the general depreciation rates set out by the Decree No. 42/2015, of 24 August, to the adjusted purchase cost or production cost.

Land is not depreciable.

Main depreciation rates for tangible assets

Group Asset Depreciation rate (%)1 Property:

Minor/small buildings 10Buildings 3 to 10Water reservoirs 4 to 5Seals and urban arrangements 5 to 8.33

2 Facilities 6.66 to 103 Machinery, equipment, and tools:

Apparatus and electronic machines 20Air condition 12.5Laboratory and precision equipment 14.28Ventilation equipment 12.5Scales 12.5 to 33.33Workshop equipment 12.5 to 20Machine tools 12.5 to 25

4 Transport materialsAircraft 20Boats 8.33 to 25Motor vehicles 12.5 to 20Tanks 16.66


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Group Asset Depreciation rate (%)5 Other tangible fixed assets:

Movies, records, and audio cassettes 25Drawing and typography materials 12.5Furniture 12.5Molds, dies, shapes, and controls 25Computer programs 33.33

Main depreciation rates for intangible assets

Asset Depreciation rate (%)Installation and expansion costs 33.33Research and development (R&D) costs 33.33

GoodwillGoodwill is an asset subject to impairment tests. The goodwill’s impairment is not a deductible cost for tax purposes.

Start-up expensesStart-up expenses include, among others, cost incurred with set-up and organisation of companies, projects, and increase of capital. Start-up expenses are considered a deductible cost up to the limits derived from the applicable tax law, 33.33% per year being deductible over a period of three years.

Interest expensesInterest expenses are deductible if considered indispensable for the realisation of taxable profits/gains (see Thin capitalisation in the Group taxation section).

Bad debtBad debts are those where the related recovery risk is considered to be justified. According to the CIT Code, the recovery risk is justified whenever there is a:

• Company insolvency and recovery proceeding and enforcement procedure.• Law court or arbitration court claimed debt.• Overdue debt.

The deduction for tax purposes of impairment losses on overdue debt is subject to the following limits, computed on the amount of the debt:

Impairment losses Delay on payment Limit (%)

Debt overdue

More than 6 and up to 12 months 25More than 12 and up to 18 months 50More than 18 and up to 24 months 75More than 24 months 100

Charitable contributionsCharitable contributions granted to certain entities whose main activity consists of the execution of initiatives in the social, cultural, environmental, scientific or technologic, sports, and educational areas are considered as cost for tax purposes (within certain limits, and in certain circumstances, with an additional deduction).


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Fines and penaltiesTax fines and penalties are not deductible for tax purposes. Contractual fines and penalties are deductible for tax purposes.

TaxesTaxes paid in connection with the activity of the company are tax deductible, excluding CIT and autonomous taxation. The annual IUP cannot be deducted as a cost for CIT purposes.

Net operating lossesIncome tax losses can be offset against taxable profit and can be carried forward for seven years, capped at 50% of the taxable profit. Carryback of tax losses is not allowed in Cabo Verde.

According to the transitional regime, tax losses generated before 2015 can be carried forward for three years without limit.

The tax losses incurred by a company are not transferable to another company unless previously accepted by the tax authorities.

Payments to foreign affiliatesCurrently, there are no special restrictions on the deductibility of royalties, interest, and service fees paid to foreign affiliates, provided that the payments are regarded as indispensable to generate taxable profits and gains and to maintain the business of the company.

Payments made to foreign affiliates located in a favourable tax regime are not accepted as deductible tax costs unless it can be demonstrate that the payment is a necessary cost and is not an exaggerated amount (i.e. it should be demonstrated that it is an acceptable/normal amount).

Group taxation

There is no special tax regime for groups of companies in Cabo Verde.

Transfer pricingCommercial transactions between associated enterprises should be subject to identical terms and conditions to those that would be accepted and agreed between independent entities (arm’s-length principle).

Taxpayers must keep information and documentation regarding their transfer pricing policies on hand. The following taxpayers must prepare a transfer pricing documentation file:

• Entities classified as ‘Large Taxpayers’.• Entities considered taxed under a privileged tax regime, as defined in the General

Tax Code.• PEs of non-resident entities.• Other entities designated as such by the tax authorities.

Thin capitalisationNet financing expenses are only deductible up to the higher of the following limits:


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• CVE 110 million.• 30% of earnings before depreciation, net financing expenses, and taxes.

Controlled foreign companies (CFCs)The CIT Code contains specific CFC rules. Profits or income obtained by non-resident entities that are clearly subject to a more favourable tax regime are imputed to the resident taxpayers subject to CIT that hold, either direct or indirectly, even if through a representative, fiduciary, or intermediary, at least 25% of their share capital, voting rights, or attribution rights over the income or the assets of those non-resident entities.


Foreign Investor Status (Estatuto do Investidor Externo)The Foreign Investor Status, which has granted some tax benefits at the level of the investor (e.g. exemption from WHT on distribution of profits and on interest related to the financing of the investment) was revoked by the New Investment Code with effect from 1 January 2013. The tax benefits already granted or for which recognition has been requested prior to the entry into force of the Tax Benefits Code (TBC) and the Investment Code are maintained. Investment projects submitted for analysis and approval to the competent authorities prior to the entry into force of the Tax Benefits Code continue to be regulated under the legislation in force at the date of the respective submission.

Contractual tax benefitsThere are exceptional incentives, regarding customs duties, CIT, personal income tax (PIT), property tax, and stamp duty, to investments that fulfil all of the following conditions:

• Investment value over CVE 550 million (or CVE 275 million if carried out outside the municipalities of the Praia, Sal, and Boavista).

• Relevant investment for the promotion and acceleration of economic development, under the government’s program.

• Creation of at least ten jobs.

The concession of contractual tax benefits is subject to approval by the Council of Ministers upon agreement.

Industrial activityThe following tax and customs benefits are provided for industrial activity:

CIT benefitsA CIT credit is available for up to 50% of the eligible investments made in an industrial activity. Any unused tax credit may be carried forward for ten years, subject to certain limitations.

Eligible investments include the acquisition of new fixed assets, patents, and licences regarding technologies.

IUP benefitsIndustrial activities may benefit from an exemption from IUP on the acquisition of immovable property used exclusively for industrial purposes; however, the recognition of such tax exemption should be approved by the municipality.


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Customs duty benefitsIndustrial activities benefit from an exemption from customs duties on the import of construction material, machines, utensils, semi and finished materials, products, and raw materials used in the production of goods.

Stamp duty benefitsFinancing transactions of industrial projects are exempt from stamp duty.

International Business Centre (IBC) of Cabo VerdeThe Cabo Verdean Agency for Foreign Investment is the entity responsible for granting the licences to operate within the IBC, upon previous proposal of the Zona Franca Comercial S.A.. The following tax benefits are applicable to entities licensed to operate in the IBC on income from industrial or business activities and services in respect of operations carried out with other IBC licensed entities or with non-residents entities (without a PE in Cabo Verde).

Note that these tax benefits are not applicable to entities engaged in tourism, banking and insurance, real estate, or construction.

CIT benefitsReduced CIT rates of 5%, 3.5%, or 2.5% are applicable to entities that create respectively 5, 20, or 50 jobs.

The CIT rate is 2.5% in case of the creation of two jobs for entities licensed to operate within the International Service Centre.

Entities licensed to operate within the IBC are granted to benefit from reduced CIT rates until 2030.

Shareholders benefitsShareholders of the entities licensed to operate within the IBC are exempt from taxation on dividends and interest received.

VAT and customs duty benefitsAll the exemptions foreseen in the VAT regulation and customs law apply.

An exemption from customs duties applies with respect to certain goods, equipment, and materials used within the scope of the activity developed and licensed under the IBC.

Tax and financial incentives for internationalisation of Cabo Verdean companiesA regime that provides for tax and financial incentives for investment projects in order to promote the internationalisation of Cabo Verdean companies is in force.

The following incentives, to be granted under a contract of not more than three years, apply to internationalisation projects of companies with head office and place of effective management in Cabo Verde that are undertaken before 31 December 2020.

CIT benefitsInvestments that are eligible for the regime of tax benefits for internationalisation may benefit from:


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• Reduced CIT rate of up to 50%, applicable until the term of the investment contract.• Exemption from CIT on income obtained by qualified expatriate employees.

Additionally, a deduction for creation of employment ranging between CVE 26,000 and CVE 35,000 for each new job created may apply.

IUP benefitsAn exemption from IUP may be available on the acquisition of immovable property for the establishment or expansion of the activity of the investor.

VAT and customs duty benefitsExemptions provided for in the VAT Code apply, as well as customs duties incentives as provided for in the general applicable legislation.

Stamp duty and other benefitsAn exemption from stamp duty is available on the incorporation of companies on an increase of share capital of existing companies, and on financing transactions.

An exemption from notary and registration fees is available on the incorporation and registration of companies.

Tax benefits for social housingEntities responsible for the construction of social housing, duly authorised by the competent regulatory authority (Comissão de Coordenação e Credenciação do Sistema Nacional de Habitação de Interesse Social or CCC-SNHIS), may benefit from the following:

• Only 30% of the income derived from the activity carried out within the scope of the social housing project is subject to CIT, under certain conditions.

• A refund of 80% of the VAT incurred in the Cabo Verdean market is available in cases where those entities carry exclusively exempt operations without the right to deduct input VAT.

• A reduction of 75% of customs duties levied on construction material listed in an annex to the diploma is available.

Development promotion entities, provided they are also authorised by CCC-SNHIS, are also eligible for VAT benefits.

Touristic Utility Status (Estatuto de Utilidade Turística)Cabo Verde may grant Touristic Utility Status to certain touristic projects. Touristic Utility Status is granted to the following types of touristic projects:

• Installation: Granted to new touristic projects.• Functioning: Granted to touristic projects starting to operate.• Refurbishment: Granted to touristic projects in case of refurbishment projects with a

value of at least 25% of the initial investment.

Touristic Utility Status generally allows for the following tax incentives and benefits:

• CIT credit of up to 50% of the eligible investments made in tourism, touristic promotion activities, and real estate tourism project investment.

• Exemption from IUP on the acquisition of real estate used for construction and installation of touristic projects if granted by the municipality.


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• Exemption from customs duties on the importation of materials and equipment used in touristic projects.

• Exemptions from stamp duty on the financing of tourism investments.

Tax incentives for renewable energiesThere is a regime for promotion, encouragement, and access, licensing, and exploitation inherent to the exercise of independent production and self-production of electricity based on renewable energy sources.

Water, wind, solar, biomass, biogas or industrial, agricultural or urban waste, oceans and tides, and geothermal are to be considered sources of renewable energy. Under the regime, renewable energy producers may benefit from the following.

CIT benefitsA CIT credit is available for up to 50% of the eligible investments made in renewable energies projects.

Customs duty benefitsAn exemption from customs duties and other customs charges applies on the importation of capital goods, raw materials and supplies, finished and semi-finished products, and other materials that are incorporated or used in the production of goods or services involved in the production of electrical energy from renewable sources.

IUP and stamp dutyExemptions from IUP and stamp duty are granted on the acquisition of immovable property and other assets related to the investment project or its financing.

Shipping transport industry incentive

CIT benefitsA CIT credit is available for up to 50% of the eligible investments made in shipping, air, and sea transportation projects.

Customs duty benefitsAn exemption from customs duties applies on the importation of shipping material for the maintenance, production, and repair of shipping and respective equipment.

IUP and stamp dutyExemptions from IUP and stamp duty are granted on the acquisition of immovable property and other assets related to the investment project or its financing.

Job creation incentivesEntities taxed under the verification method are entitled to deduct the following amounts for each created permanent job:

• CVE 26,000 for each job created in the municipalities of Boa Vista, Praia, and Sal.• CVE 30,000 for each job created in the remaining municipalities.• CVE 35,000 in case of a disabled person.

Media, telecommunications, and internetImportation of good, materials, equipment, vehicles, and other equipment exclusively for the purpose of telecommunications and media are exempt from customs duties.


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Tax benefits to the financial sectorThe Tax Benefit Code has several measures in the financial sector, as follows.

Financial investmentsIncome derived from certificates of deposit and long-term bank deposits benefit from a CIT exemption of up to 75% (depending on the maturity date of the deposits).

Securities market (bonds)Income derived from bonds or similar products (except public debt securities) listed in the securities market obtained until 31 December 2017 benefit from a 5% CIT flat rate.

Additionally, dividends from shares listed in the stock exchange, placed at the disposal of its holders until 31 December 2017, are exempt from CIT.

Investment funds (securities and real estate funds)Income derived from securities funds, when established and operating under the Cabo Verdean legislation, is taxed as follows:

• Income obtained in the Cabo Verdean territory is exempt from CIT (except capital gains).

• Foreign income is subject to a 10% CIT flat rate (except capital gains).• Capital gains are subject to a 10% CIT rate.

Income derived from real estate funds, established under the Cabo Verdean legislation, is taxed as follows:

• Real estate income benefits from a 10% CIT rate (after deduction of the respective expenses).

• Capital gains benefit from a 15% CIT rate over 50% of the income, resulting in an effective rate of 7.5%.

Income received by unit holders in securities funds and real estate investment funds, established under Cabo Verdean legislation, is exempt from CIT.

Venture capital fundsIncome derived from venture capital funds, established under Cabo Verdean legislation, as well as income received by the unit holders in venture capital funds, is exempt from CIT.

International financial institutionsInternational financial institutions within the scope of Law 43/III/88 and revoked by Law 61/VIII/2014, of 27 December, benefit from:

• Customs duties exemption on the importation of materials and equipment that are exclusively for the setting-up of the financial institution.

• CIT exemption until 31 December 2017 and a 2.5% CIT rate from 1 January 2018 onwards.

• Stamp duty exemption in transactions with non-residents entities.

Individuals and entities considered as clients of such international financial institutions, benefit from:

• CIT exemption, regardless of the type of income.


Cabo Verde

• Stamp duty exemption.

Holding companies (Sociedades Gestoras de Participações Sociais)Capital gains or losses realised by holding companies, as well as financing expenses incurred with the acquisition of shares, held for at least 12 months, are not taken into account for the purposes of computation of the taxable profit of such holding companies.

This rule does not apply in case of shares acquired from associated enterprises or from entities located in territories with a more favourable tax regime.

Exemption of WHT is granted on the payment of income made by affiliate entities held for at least 12 months with a share capital of at least 10%.

Tax benefits with social nature and customs duties benefits

Incentives for employers hiring young peopleIndividuals and legal persons under the organised accounting regime that hire workers not older than 35 years for a first job are exempt from contributions due by the employer to social security.

This benefit shall only apply to contracts with a duration of one year or more, which relate to workers registered in the social security system and provided that no reduction or elimination of jobs has occurred, and assuming that the employer has paid the contributions due by the employee to social security.

Training, internships, and grantsCompanies taxed under the verification method may deduct 150% of the following costs:

• Costs related to the training of employees.• Costs associated with the hiring of young people for internship positions.• Costs associated with scholarships granted to students.

DonationsCompanies may deduct 130% of the amounts donated to the following entities and activities, up to 1% of the turnover, under certain conditions:

• Entities that develop, among others, social, cultural, sportive, educational, environmental, scientific, technological work, and health services.

• State, municipalities, and any other public services.• Municipal associations.• Foundations.

Customs duties benefitsUnder certain conditions, the following business sectors, among others, may benefit from customs duties exemption on the importation of products, materials, and equipment related to the activity/project:

• Agriculture, livestock, and fishing activity.• Civil aeronautics.• Diplomatic and consular missions.• Aid to economic development.


Cabo Verde

• Foreign citizen retired.• Sports and musicals.• Fire corporation.

Tax benefits to other sectors of investmentEligible investments made in activities such as information technology and scientific research may benefit from:

• CIT credit of up to 50%.• Exemptions from IUP, stamp duty, and customs duties on the acquisition of

immovable property and other assets related to the investment project or its financing.

Tax benefits regarding the Recovery of Business and Insolvency CodeThere are CIT, PIT, stamp duty, and property tax benefits for companies under recovery of business and insolvency procedures.

Exceptional regime of tax debt regularisation for tax debtThere is an exceptional regime of tax debt regularisation for debt whose legal payment period ends until 31 December 2016, applicable to all tax debts declared by the taxpayer and tax debts required in tax enforcement proceedings for the purpose of enforcing payment, established until 31 December 2016.

The Regime provides the remission of compensatory interest and default interest and reduction of the costs of the tax enforcement process and penalties in cases of debt payment in cash, in whole or in part, over up to 12 monthly instalments.

Foreign tax creditCabo Verdean tax law allows a foreign tax credit to mitigate the double taxation on foreign income taxed in another jurisdiction. The tax credit is equal to the lesser of: (i) the income tax paid abroad or (ii) the CIT fraction calculated before the deduction is given corresponding to incomes that may be taxed in the country concerned, net from any cost or losses, directly or indirectly incurred, for the purposes of its realisation. Foreign tax credit cannot exceed the tax foreseen in the tax treaty, if applicable.

Withholding taxes

A WHT relief on profit distribution is in force from 2017 onwards.

Interest payments, in general, are subject to WHT at a rate of 20%.

Bond interest is subject to WHT at the rate of 10%, except bonds and similar financial products (except public debts) duly listed on the stock exchange, which are subject to CIT at the reduced rate of 5%.

Royalty payments are subject to WHT at the rate of 20%.

Payments of services between resident companies are generally not subject to WHT.

Rental payments are subject to WHT of 10% when paid or made available by companies. However, rental payments between resident companies are, generally, not subject to WHT.


Cabo Verde

For a Cabo Verde-based recipient, tax withheld is a payment on account against the final income tax due regarding income derived from (i) business, commercial, and services activities, (ii) real estate income, and (iii) employment income when the beneficiary of such income opts to file a tax return.

Any non-Cabo Verdean resident entity carrying out an economic activity in Cabo Verde is subject to a final WHT at the same rates applicable to each income category foreseen but the Tax Code.

Regarding income paid to micro and small-sized companies, the WHT applicable is 4%.

Tax treatiesUnder the Cabo Verde/Portugal tax treaty, WHT is limited as follows:

• Dividends: 10%.• Interest: 10% (0% applies to interest paid by public bodies).• Royalties: 10%.

The tax treaty signed between Cabo Verde and Macau has entered into force. WHT is limited as follows:

• Dividends: 10%.• Interest: 10%.• Royalties: 10%.

The tax treaty signed between Cabo Verde and Guinea Bissau has entered into force. WHT is limited as follows:

• Dividends: 5%. However, there is a WHT exemption (WHT at the rate of 0%) if a direct or indirect participation in share capital or voting rights of at least 5% is held, consecutively, for 24 months prior to the date at which the profits are made available.

• Interest: 10%.• Royalties: 10%.

Tax administration

Taxable periodAs a general rule, the tax year is the calendar year. A different tax year may be applied, subject to authorisation from the Ministry of Finance, in the case of non-resident companies with a PE in Cabo Verde and in other situations duly justified by economical reasons.

Tax returnsTaxpayers are required to file a tax return by 31 May of the year following the end of the tax year.

Payment of taxCorporate taxpayers taxed under the standard regime must make three pre-payments on account of their income tax liability for the current tax year. The pre-payments are due by the end of March, July, and November and amount to 30%, 30%, and 20%, respectively, of the preceding tax year’s income tax liability.


Cabo Verde

Taxpayers are required to self-assess the tax due by 31 May of the year following the end of the tax year.

Micro and small-size companies are also subject to pre-payments, at a 4% tax rate levied on the annual turnover (sales and services), due by the last day of April, July, October, and January of the following year.

Tax audit processThere are no specific rules regarding the tax audit cycle in Cabo Verde.

Statute of limitationsThe statute of limitations period in Cabo Verde is for five years.

Topics of focus for tax authoritiesThe main topics of focus for the Cabo Verde tax authorities include cost incurred on vehicles, communications, representation expenses, personnel costs, management fees, and payments to non-residents.

Large TaxpayersTaxpayers that meet at least one of the following criteria qualify as a ‘Large Taxpayer’ and shall be monitored by the Special Tax Office for Large Taxpayers:

• Turnover exceeding CVE 200 million, based on the annual income tax return.• High level of inherent risk, based on a matrix developed by specific software.• Taxes paid exceeding CVE 15 million, correspond to the sum of payments of CIT,

WHT, VAT, and stamp duty.

Other issues

United States (US) Foreign Account Tax Compliance Act (FATCA)Cabo Verde and the United States have reached an ‘agreement in substance’ on a Model 1 Intergovernmental Agreement (IGA), in which Cabo Verde consented to disclose this status as of 30 June 2014.

Cameroon, Republic of 55www.pwc.com/taxsummaries

Cameroon, Republic of

PwC contact

Nadine Tinen TchangoumPricewaterhouseCoopers Tax and LegalImmeuble PwC, Rue Christian Tobie Kouoh BP: 5689Douala BonanjoRepublic of CameroonTel: +237 33 43 24 43/44/45Email: [email protected]


As of 1 January 2017, the following significant corporate tax developments were introduced in Cameroon by the 2017 Finance Law:

• An African Integration Contribution (AIC) has been instituted at the rate of 0.2%, applicable to the taxable value of goods imported from third party countries into the African Union.

• Goods acquired electronically and imported into Cameroon shall be subject to customs duties and taxes under conditions laid down by regulation.

• Health insurance premiums paid to local insurance companies for members of staff and their spouses and dependent children, where the reimbursement of expenses to the same persons fails to appear under deductible charges, shall be deducted from the taxable profits.

• Tax incentives are granted for the promotion of youth employment, approved management centres, educational and vocational training, health, rehabilitation of disaster areas, local materials and raw materials, and innovation.

• Companies that issue stocks on the Cameroon Stock Exchange shall be entitled to a reduced corporate income tax (CIT) rate of 25% (i.e. 27.5% including 10% additional council tax) for a period of three years, with effect from the year of issue.

• There are, henceforth, three rates of special income tax (SIT): the general rate at 15%, the average rate at 10%, and the reduced rate at 5%.

• Public contracts and procurements paid from the budget of state-owned companies and semi-public corporations shall be subject to the registration duties at the rate of 2% or 1% where the amount is, respectively, less or more than 5 million Communauté Financière Africaine francs (XAF).

• The business licence to be paid shall be calculated by applying a rate (depending on the size of the enterprise) to the turnover realised the previous financial year ended. There are minimum and maximum contributions according to the size of the enterprises.


Resident corporations in Cameroon are taxed on their worldwide income; non-resident corporations are taxed only on Cameroon-source income.

The following shall be deemed to be operating in Cameroon and subject to CIT:

• Undertakings headquartered in Cameroon or with an effective management office in Cameroon.

PwC Worldwide Tax SummariesCameroon, Republic of56


• Undertakings that have a PE in Cameroon or with an effective management office in Cameroon.

• Undertakings that have a dependent representative in Cameroon.• Undertakings that carry out activities that form a full commercial cycle in

Cameroon.

The profits subject to CIT are determined with sole regard to profits earned by entities located in Cameroon (for residents) or transactions effected in Cameroon (for non-residents having a permanent establishment [PE] in Cameroon).

The net taxable profits are established after deduction of all charges directly entailed by the exercise of activities subject to assessment in Cameroon.

The total Cameroon CIT rate is 33%.

Taxation system/regimeCorporate bodies are assessed according to the following taxation systems determined on the basis of the turnover realised:

• Flat rate taxation system: Sole proprietorships with an annual turnover of below XAF 10 million, except for logging companies, professional officers, and liberal professions.

• Simplified taxation system: Sole proprietorships and corporate bodies with an annual turnover equal to or above XAF 10 million and below XAF 50 million.

• Actual earnings taxation system: Sole proprietorships and corporate bodies with an annual turnover equal to or above XAF 50 million.

Minimum taxThere is a 2.2% or 5.5% minimum tax in Cameroon based on turnover and depending on the tax regime of the taxpayer. The advance payment shall be 10% for any taxpayer that is not on the register of a tax office. The 10% rate shall be increased to 20% for forestry companies where, in addition, they do not provide evidence of possessing a logging permit duly issued by the competent authority.

The 10% rate also applies to remunerations paid to non-salaried sales agents or representatives and agents of direct network sales. The 15% rate applies to taxpayers not registered with a taxation centre and engaged in import activities. The 15% rate shall be increased to 20% where the taxpayer carries out the sale of in-bond goods.

The advance payment shall be 15.04% of the gross margin for firms subject to the actual earnings tax system and falling under regulated profit margin sectors, subject to the option for the tax regime of common application. In case of mixed activities, there is a mandatory application of the 2.2% rate on the share of turnover relating to the free margin.

This minimum tax is an instalment of CIT. As such, it shall be offset against CIT. The minimum tax is the sole tax payable if it is greater than CIT.

Local income taxesA local tax of 10%, called Additional Council Tax, generally applies to the following taxes:

• CIT.



• Personal income tax (PIT).• Withholding tax (WHT) on income from stock and shares.• Value-added tax (VAT).

The rate provided in this summary for each tax above is therefore inclusive of a basic rate plus 10% surcharge.

Corporate residence

An entity is deemed resident if its registered office, centre of activity, or management is located in Cameroon; if it has resident employees in Cameroon that provide services to customers; or if it has a PE in Cameroon.

Permanent establishment (PE)Undertakings that have a PE in Cameroon or with an effective management office in Cameroon shall be deemed to be operating in Cameroon and subject to CIT.

PE shall mean a physical installation with certain fixity and with a certain degree of autonomy through which the foreign company carries out wholly or part of its business.

Other taxes

Value-added tax (VAT)VAT shall be levied on natural persons or corporate bodies that automatically, habitually, or occasionally carry out taxable transactions consisting of provisions of services or sales of goods.

The total VAT in Cameroon is 19.25%. Exports are zero rated. The VAT paid upstream is recoverable, except where otherwise stated.

Note that VAT is invoiced only by natural and legal persons whose turnover (taxes excluded) is equal to or above XAF 50 million and who are under the tax regime of actual earnings.

Customs dutiesCustoms duties of between 5% and 30%, depending on the nature of the goods imported, are levied based on the customs value.

Goods acquired electronically and imported into Cameroon shall be subject to customs duties and taxes under conditions laid down by regulation.

The rate of the Common External Tariff (CET) has been re-established on some products, such as rice and cement. As such, the import of rice, which previously benefitted from the suspension of duties and taxes, is henceforth subject to the CET at the rate of 5%, and the CET rate has been revised upwards for some types of cement.

The 2017 Finance Law has instituted an African Integration Contribution (AIC) at the rate of 0.2% applicable to the taxable value of goods imported from third party countries into the African Union.



Excise taxesAn excise duty of 25% is applicable to cigarettes, drinks, cosmetics, luxury items (e.g. jewels, precious stones), slot machines, and other devices used for games of chance. A reduced rate of excise duty (12.5%) shall apply to soft drinks and private vehicles with engine capacities of 2,000 cm³.

There is an extra-reduced rate of excise duties at 2% applicable to mobile telephone communications and Internet services.

Deductions initially made as excise duties shall be subject to regularisations by tax officials in case of reselling throughout the national territory.

There are minimum excise duties applicable to alcoholic beverages and tobacco. For tobacco, the minimum tax shall not be less than XAF 3,500 for 1,000 cigarette rods. For alcoholic beverages, the minimum tax depends on the nature of the alcohol and the alcohol level per litre.

Real property taxCameroon property tax is payable annually on real estate with or without an ownership certificate or an administrative or judicial order issued. Tax is charged at 0.1% of the assessed property value.

Properties belonging to clubs, associations, or sporting bodies’ accredited properties intended for sports and sports facilities are exempt from real property tax.

Transfer taxThe sale of a business in Cameroon is subject to a transfer tax rate of 15%.

Registration dutyThe registration duty applies to certain deeds listed by the General Tax Code (GTC). The assessment basis depends on the nature of transactions, and the rate varies from 1% to 15%.

The formation of a company and subsequent capital increases in Cameroon are not subject to registration duty.

Public contracts or procurements for amounts of less than XAF 5 million, paid from the budget of the state, local, and regional authorities, administrative public establishments, or from external funding, shall be subject to registration duty at the rate of 5%.

Public contracts and procurements paid from the budget of state-owned companies and semi-public corporations shall be subject to registration duty at the rate of 2% or 1% where the amount is, respectively, less or more than XAF 5 million.

Public orders for fuels and lubricants, regardless of the purchase or payment method, shall be exempted from registration duty and stamp duty.

The following transactions are subject to registration duty at the rate of 2%:

• The transfer of shares and bonds of commercial or civil companies with registered offices outside of the Economic and Monetary Community of Central Africa



(CEMAC) zone when said instruments are utilised or when the transfer produces consequences in a CEMAC country.

• The transfer (even indirect) in Cameroon or abroad of shares and bonds of companies with registered offices in Cameroon.

Stamp dutyStamp duty in CEMAC countries is established, independent of registration fees, on all papers to be used for civil and legal instruments and documents that may be brought before law courts as proof. It shall be collected on the basis and in accordance with the rules laid down in the GTC.

Stamp duty shall be fixed according to the nature of the instruments subject thereto. There shall be no exemptions except those expressly indicated in the GTC.

The maximum and minimum stamp duty based on paper size are fixed at XAF 1,500 and XAF 1,000, respectively, in Cameroon.

Payroll taxEmployers in Cameroon are required to make monthly contributions of 2.5% of the total amount of salaries and fringe benefits of their employees to the Housing Loan and Employment Fund of Cameroon.

Social security contributionsEmployer and employee must contribute on a monthly basis to Cameroon’s National Social Insurance Fund at 11.2% and 4.2%, respectively. The basis of contribution is capped at XAF 750,000 per month (i.e. XAF 9 million per year). Employers in Cameroon must also contribute 1.75%, 2.5%, or 5% of total salaries to the National Social Insurance Fund for Industrial Accidents when they are respectively classified in groups A, B, or C according to the classification per type of activity. The calculation basis in this category is the gross salary, including the benefits in kind assessed for their actual amount.

Business licence taxAny natural person or corporate body carrying on a trade, industry, or profession in Cameroon shall be liable to a business licence tax. The business licence tax is paid annually and shall be calculated by applying a rate to the turnover of the previous financial year ended as follows:

• 0.159% on the turnover of large companies (those under the jurisdiction of the large taxpayers unit, or DGE for its French acronym), for a minimum contribution of XAF 5 million and a maximum contribution of XAF 2.5 billion.

• 0.283% on the turnover of medium-sized companies (those under the jurisdiction of the Medium Size Taxpayers Centre, Specialised Tax Centre, and Specialised Tax Centre for Liberal Professions and Real Estate), for a minimum contribution of XAF 141,500 and a maximum contribution of XAF 4.5 million.

• 0.494% on the turnover of small-sized companies (those under the jurisdiction of the divisional tax centres), for a minimum contribution of XAF 50,000 and a maximum contribution of XAF 140,000.

New enterprises shall be exempt from the payment of the business licence tax during the first year of operation.



Branch income

The local branch of any foreign company is taxed at the same rate as a company. The net profits (after CIT) of entities having their residence or head office outside Cameroon (such as the branch of a foreign company) are assumed to be distributed each fiscal year to companies not located in Cameroon. Their net profits (after CIT) shall therefore be subject to the WHT on distributions at 16.5%.


Inventory valuationFor valuation purpose, the GTC only provides that stocks shall be valued at cost price; however, if the market price is lower than the cost price, the undertaking shall make provisions for depreciation of inventory. No reference is made to the accounting method that shall be used (e.g. first in first out [FIFO], last in first out [LIFO]). Only FIFO and weighted average methods are allowed under the Organisation for the Harmonisation of Business Law in Africa (OHADA) Accounting Principles. Where there is any difference between the valuation method permitted by the GTC and the book valuation, the accounting result shall be modified accordingly.

Firms shall, by 15 March, submit a summary of all the stock movements of the financial year concerned, together with the software used in managing the said stock. The summary of inventory movements should be produced in dematerialised form.

The right of ascertainment of stocks by the tax administration shall allow tax officers to conduct unannounced on-site operations to physically audit the stocks of one or several products of the non-prescribed period. A notice of passage shall be remitted to the taxpayer or representative during the first intervention within the framework of such audit.

Capital gainsCapital gains are normally taxed at full CIT rates.

The net overall capital gains arising from the transfer of shares and stocks; income from bonds; income from debts, deposits, surety-bonds, and current accounts; profits realised from the transfer of shares; reimbursement of sums put at the disposal of the company by a manager or a partner as an advance or a loan; and capital gains on the transfer of rights relating to natural resources shall be subject to 16.5% WHT.

For transfers realised abroad, the Cameroonian law enterprise and the transferor shall be jointly and severally liable to payment of the sums due under such transfer.

Dividend incomeDividends are subject to the WHT of 16.5%. However, dividends shall be treated as proceeds for the purpose of CIT, and the tax withheld at source is used as instalment for the payment of CIT.

Interest incomeInterests are subject to the WHT of 16.5%. However, interests shall be treated as proceeds for the purpose of CIT, and the tax withheld at source shall be used as instalment for the payment of CIT.



Interests on external loans of a maturity period of at least seven years, signed as of 1 January 2014, are exempted from the WHT.

Royalty incomeRoyalties received from foreign entities shall be included in the taxable income subject to CIT, subject to double tax treaties (DTTs).

Foreign incomeAs a matter of both fact and law, revenue from abroad earned by corporate bodies situated in Cameroon shall be subject to CIT in Cameroon. There is no provision on tax deferral in Cameroon.

Deductions

DepreciationDepreciation is generally computed on a straight-line basis over the useful life according to the rates provided for by the GTC, including those that might have already been deferred in times of deficit.

The following depreciation rates are generally accepted for tax purposes:

Assets Depreciation rates (%)Construction 5 to 20Stationary equipment and tools 5 to 20Portable equipment 10 to 100Transport equipment 10 to 33.33Railway lines 1 to 10Engines 5Rehabilitation 5 to 25Furniture fittings and other equipment 10 to 33.33Fishing equipment and fishing vessels 15

The deduction of depreciation can be carried forward indefinitely.

The threshold for small equipment and tools to be included in the balance sheet shall be XAF 500,000.

GoodwillWith regard to rules governing the deduction of provisions and depreciation, impairment of goodwill shall be allowable for CIT purposes.

Start-up expensesThere is no specific provision in the GTC relating to start-up expenses.

However, the OHADA Accounting Principles effectively state that start-up expenses shall be capitalised and must be completely depreciated as early as possible: over two to five years, except bond premiums, which are depreciated throughout the life of the loan.

No distribution of profit should be carried out before the complete depreciation of start-up expenses.



Intellectual property (IP)Sums paid to related entities for the use of valid patents, brands, designs, and models are capped at the overall limit of 2.5% of the taxable income before the deduction of expenses claimed. When they are paid to entities located outside the CEMAC that directly or indirectly hold shares or are members of the Cameroonian entity’s board of directors, they shall be considered as sums accruing from the distribution of profits. As such, they are not allowable.

Interest expensesInterest expenses are fully deductible.

However, interest paid to partners/shareholders in respect of the sums they leave with or place at the disposal of the company over and above their capital, irrespective of the type of company, shall be acceptable within the limits of those calculated at the rate of the central bank discount rate, raised by two points.

Bad debtThe deductibility of provisions for bad debts is subject to the following conditions:

• The debt must be specified (i.e. clarification is needed on the nature, amount, and the debtor).

• The company must show that it has unsuccessfully carried out actions for debt recovery (e.g. reminder letters, notice to pay, complaints).

For losses related to bad debts to be deductible, they should have been subjected to all amicable or forced collection methods and means provided for by the OHADA Uniform Act on the Organization of Simplified Procedures for Collection and Enforcement Procedures. Otherwise, they shall not be deductible.

In this regard, the impossibility of recovering the debt must be evidenced by:

• a deficiency report prepared by a bailiff• a bankruptcy decision duly passed by the judge, if necessary, or• a decision passed by a judge, bearing out the debtor who disputed the debt.

Charitable contributionsActs of liberality, gifts, and subsidies shall not represent the charges deductible from profits.

However, payments made to research and development (R&D) bodies and to collective philanthropic, educational, sports, scientific, social, and family institutions and bodies, on condition that the latter are situated in Cameroon, shall be deductible as soon as there is proof of payment and as long as they do not exceed 0.5% of the turnover for the fiscal year. Similarly, gifts made on the occasion of a disaster shall be deducted in the form and conditions determined by order of the Minister of Economy and Finance.

Liberalities, gifts, and subsidies awarded to clubs participating in the elite national competitions or to recognised organisations responsible for the organisation of official sport competitions are deductible, provided they are justified, within the limit of 5% of the annual turnover.



Fines and penaltiesCompounding fees, fines, confiscations, and any penalty concerning persons who violate legal, economic, and fiscal provisions shall not be deducted from the profits subject to taxation.

TaxesOnly the professional taxes issued for collection during the fiscal year and which are to be borne by the firm in relation to the operations carried out in Cameroon shall be subject to deduction.

CIT, WHT, and PIT shall not be considered as deductible expenses for the levying of taxes.

Net operating lossesAny loss sustained in a given year can be carried forward up to the fourth year following the recording of the loss. The carryback of losses is not permitted in Cameroon.

Losses due to damage in inventories shall be deductible from the taxable basis when they are duly established and validated by a Commissioner of damage in the presence of a taxation officer with the rank of at least an inspector, under the conditions specified in the Manual of Tax Procedures.

Payments to foreign entitiesHead office overhead expenses for operations carried out in Cameroon and the remuneration of certain effective services (studies, technical, financial, or accounting assistance) provided to Cameroonian firms by foreign natural persons or corporate bodies are not totally deductible.

Fees paid are deductible up to a maximum of:

• 5% of intermediary earnings as a general rule• 2.5% of the turnover for firms specialised in public works, and• 7.5% for design firms operating in accordance with regulations relating to design

firms and consulting engineers.

The notion of technical assistance shall include services provided by entities located either overseas or in Cameroon.

Expenses linked to transactions with natural persons or legal entities resident or established in a territory or state considered to be a tax haven shall not be deductible. This rule shall not apply to imports of goods made in those countries. A tax haven is any state where the tax on the income of a natural person (PIT) or legal entity (CIT) is less than a third of that paid in Cameroon, or any state or territory considered not to be co-operative in matters of transparency or of exchange of information required for fiscal purpose by international or financial organisations. The rate to be considered in Cameroon for that purpose is 35% for PIT and 30% for CIT.

Group taxation

There is specific taxation of groups within the CEMAC area.



Where a joint stock company and a private limited company own either registered stock in a joint stock company or shares in a private limited company, the net proceeds of the share in the second company paid to the first during the financial year shall be deducted from the total net profit of the latter, less a percentage for costs and charges. This percentage is fixed at 10% of the total amount of the proceeds. This system shall apply when all of the following conditions are met:

• The stocks or shares owned by the parent establishment represent at least 25% of the capital of the subsidiary firm.

• The parent and subsidiary firms have their registered office in a CEMAC state (Cameroon, Central African Republic, Chad, Gabon, Equatorial Guinea, and Republic of Congo).

• The stocks or shares allotted at the time of issue are still registered in the name of the participating company that undertakes to retain them for at least two consecutive years in registered form.

Transfer pricingThere are provisions in the GTC that relate to transfer pricing.

Within the framework of a tax audit, the documents required for the justification of transfer pricing shall be presented to the tax inspectors at the start of the procedure. Items such as business transactions, payments in consideration for intangible rights, allocations of costs and expenses (head office costs, agreements to share costs, disbursements, etc.), financial transactions, etc. are particularly targeted for close scrutiny.

Companies in the Large Taxpayers Unit (LTU) shall declare participation in companies that are equal to or more than 25% of the share capital of the latter, as well as the supporting documents for intra-group transactions, at the same time as their annual tax return.

Thin capitalisationThe deduction of interests on sums of money left or placed at the disposal of local entities by partners or related companies who directly or indirectly own at least 25% of the share capital or corporate voting rights is capped at:

• one and a half times the amount of equity or• 25% of profit before corporate tax and before deduction of the said interests and

amortisations taken into account in determining such profit.

Otherwise, interests on the excess amount shall not be deductible.

Controlled foreign companies (CFCs)We are not aware of any special provisions for CFCs. Indeed, subject to the provisions of international conventions and the provisions relating to group taxation mentioned above, revenue from stocks and shares held in a company based abroad shall be subject to income tax in Cameroon.


Foreign tax creditTaxes paid abroad are not considered as tax credits unless provided as such by DTTs.



The system of reinvestment reliefThis system of reinvestment relief previously provided by the GTC has been cancelled by the 2015 Finance Law.

The private investment tax incentive regimeThe private investment tax incentive regime applies to investment operations relating to the creation, extension, renewal, refurbishing of assets, and/or the transformation of activities carried out in Cameroon.

The major tax advantages related to the private investment regime in Cameroon are the following:

• During the installation phase: Tax incentives for a maximum period of five years.• During the exploitation phase: Tax incentives for a maximum period of ten years.• For the development of existing companies: Tax incentives for a maximum of five

years.• Possibility of specific advantage for prioritised sectors.

Tax and customs incentives granted to investors consist of exemptions from or reductions of payment of several taxes, duties, and other fees listed.

Conventions and agreements signed by the authorities that provide for customs and tax exemptions and waivers shall, under pain of unenforceability, be subject to prior approval by the Minister in charge of finance.

Incentives applicable to listed companiesCompanies whose ordinary shares are listed on the Cameroon Stock Exchange shall be entitled to the following CIT reduced rates:

• 22% for a period of three years for capital increases that represent at least 20% of the share capital.

• 27.5% for a period of three years for transfers of shares that represent at least 20% of the share capital.

• 30.8% for a period of three years from the date of listing for capital increases or transfers of shares that represent less than 20% of the share capital.

According to the 2016 Finance Law, such reduction shall be granted to companies listed on the stock market within three years, with effect from 1 January 2016.

Companies that issue stocks on the Cameroon Stock Exchange shall be entitled to a reduced CIT rate of 25% (i.e. 27.5% including 10% additional council tax) for a period of three years, with effect from the year of issue.

Specific tax incentivesThe following may benefit from specific tax incentives:

• Transactions on real estate located in areas subject to the official list price.• Promotion of youth employment.• Members and promoters of approved management centres.• Education, vocational training, and health establishments.• New investments carried out in economic disaster areas.• Companies involved in agriculture, stock breeding, and fisheries.• Public establishments promoting local building materials.



• New beverages produced and packaged exclusively using local raw materials.• Expenses for research and innovation.

Withholding taxes

Special income tax (SIT)Subject to DTTs, an SIT is levied on income paid to natural persons and corporate bodies domiciled abroad by enterprises or establishments based in Cameroon, by the state or regional and local authorities. The tax is withheld at source by the Cameroonian entity that pays the remuneration.

Subject to DTTs, the SIT rates are fixed as follows:

• The general rate of 15% is applicable to remunerations paid abroad in respect of various services provided and used in Cameroon.

• The average rate of 10% is applicable to remunerations for ad hoc material services paid to non-domiciled companies (undertaking short-term operations in Cameroon) that have a PE in Cameroon and waived the tax in accordance with the tax returns.

• The reduced rate of 5% is applicable to remunerations under public procurement where the successful bidders are not domiciled in Cameroon.

Non-commercial profits WHTA 16.5% WHT is to be deducted at source by entities that pay remunerations granted to the board members of public institutions, public corporations, and semi-public companies in any capacity.

The tax rate applicable to non-commercial revenue is 11% to be deducted at source by entities that pay the following:

• Allocations of any nature, such as allowances, gratuities, compensations, and daily subsistence allowances granted, in addition to salaries, by public and semi-public entities, excluding statutory compensations falling under the category of wages and of salaries, and reimbursement of costs, the list of which shall be established by decision of the Minister in charge of finance.

• Amounts, allowances, allocations, or remunerations of any nature paid to sportsmen and artists, irrespective of their tax domicile.

Dividends WHTA total WHT of 16.5% applies to dividends paid to both Cameroon residents and non-residents. The WHT rate may be reduced under an applicable DTT.

Interest WHTThe interest from foreign loans is subject to 16.5% WHT. The WHT rate may be reduced under an applicable DTT.

Interests on external loans of a maturity period of at least seven years, signed as of 1 January 2014, are exempted from the WHT.

Royalties WHTRoyalties paid to non-residents are subject to a 15% WHT (the 10% surcharge is not applicable). The tax rate may vary under some DTTs.



Tax treatiesCameroon has DTTs with Canada, France, Morocco, Tunisia, and members of CEMAC (Cameroon, Gabon, Equatorial Guinea, Congo, Chad, and Central African Republic).

Recipient Dividends (%) Interest (%) Royalties (%)

Head office expenses

and technical assistance (%)

CEMAC 16.5 16.5 N/A N/ACanada 16.5 16.5 16.5 15France 15 15 N/A 7.5Morocco 10 10 10 10Tunisia 12 15 15 15

Tax administration

Taxable periodThe tax year in Cameroon is the calendar year.

Tax returnsOn or before 15 March, taxpayers are expected to submit to the tax administration the annual return of revenue derived from their business venture during the period serving as the tax base.

This return must be presented in conformity with the OHADA accounting system.

No one may invoke a claim on the state to shirk its return and payment obligations.

Despite the declarative tax system applicable in Cameroon, the tax administration may send a pre-completed return of collected revenue or any other taxable item, with the tax amount owed, to any natural or legal person paying taxes or duties as per laws and regulations in force.

The taxpayer that feels overtaxed or wrongfully taxed under a pre-filled tax return procedure shall submit a request for correction to the competent taxation centre within one month of receipt of such return. In such case, the tax authorities and the taxpayer shall have 30 days within which to decide the final taxes established by a collection notice (CN).

Failure to pay within 15 days of receiving the CN or respond to a pre-filled tax return in time shall be tantamount to accepting the terms thereof.

Other tax filingsFirms falling under a dispensational or special tax regime shall file, by 15 March, a summary declaration of transactions of the previous year for which they obtained tax benefits, including theoretical taxes and levies corresponding to the said transactions.

Firms shall, by 15 March, submit to the tax administration a summary of all the stock movements of the previous year, together with the software used in managing the said stock.



Payment of taxAn instalment representing the 2.2% or 5.5% minimum tax of turnover realised during each month shall be paid to the tax authorities not later than the 15th day of the following month.

Advance payment of 0.5%, 2%, 5%, 10%, 14%, 15%, 15.04%, or 20% is withheld at source by the buyer or the customs administration on purchases and imports destined to be resold, depending on the tax regime applicable to the buyer or importer. See Minimum tax in the Taxes on corporate income section for more information.

The balance of CIT is paid, at the latest, on 15 March following the fiscal year-end, when submitting the CIT return.

Surplus tax paymentsA surplus tax payment can be offset against future taxes of the same nature to be paid. For the specific case of VAT, a reimbursement process is provided for by the GTC under certain conditions.

Tax audit processThere is no audit cycle in Cameroon.

Statute of limitationsThe statute of limitations is four years.

Topics of focus for tax authoritiesThe topics of focus for tax authorities include the following:

• Remunerations paid for services provided to local entities by providers located overseas.

• Transfer pricing.• Deduction and reimbursement of VAT.• WHT.• Stocks (inventory valuation and management).

Chad 69www.pwc.com/taxsummaries

Chad

PwC contact

Nadine Tinen TchangoumPricewaterhouseCoopers Tax and LegalImmeuble PwC, Rue Christian Tobie Kouoh BP: 5689Douala BonanjoRepublic of CameroonTel: +237 33 43 24 43/44/45Email: [email protected]


The significant corporate tax developments in Chad during the past year are as follows:

• Institution of withholding valued-added tax (VAT) by the Public Treasury at the rate of 80% on the amount of VAT due on the payments made within the framework of the public market of state, local communities, public establishment, and large companies.

• Institution of excise duty at the rate of 18% on the turnover of mobile companies.• Institution of the special tax on oil products at the rate of 50 Central African CFA

francs (XAF) per litre.• Institution of the tax for the modernisation of airport infrastructures.• Institution of the tax at the rate of 0.2% on behalf of the African Union on imports

out of the Africa area.


The profits subject to the corporate tax are determined with sole regard to profits earned by businesses carried out or transactions conducted in Chad.

Net taxable profits are established after deduction of all charges directly entailed by the exercise of activities subject to assessment in Chad. As income from other countries is not liable to tax, foreign charges and losses are not deductible either.

The corporate tax rate is 35%.

Minimum taxThere is a minimum tax of 1.5% based on turnover and an additional XAF 1 million as the minimum/floor amount.

The minimum tax shall be filed and paid monthly for companies subject to the normal tax regime and quarterly for companies subject to the simplified tax regime.

Local income taxesThere are no local income taxes in Chad.

Corporate residence

Registered entities (i.e. companies, branches, and subsidiaries) conducting economic activities in Chad are liable to pay corporate tax. Specifically:

PwC Worldwide Tax SummariesChad70

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• Limited companies.• Limited partnerships with shares.• Limited liability companies.• Cooperative societies and their unions.• Public institutions.• Agencies of the state with financial autonomy.• Municipal bodies and any other legal entity engaged in an operation for gain.• Real estate companies, regardless of their form.• Civil companies, other than real estate companies, involved in industrial,

commercial, or agricultural activities.• Limited partnerships, on the share of profits relating to the rights of sponsors.• Associations in participation, including financial syndicates, on the share of profits

relating to the rights of sponsors.• Co-owners of shipping companies, on the share of profits relating to the rights of

sponsors of associated co-owners, other than those with unlimited liability or whose names and addresses are not listed with the tax administration.

• Travel agencies.

Permanent establishment (PE)According to the Economic and Monetary Community of Central Africa (CEMAC) Fiscal Convention, a legal person is domiciled in one’s ‘permanent home’; this expression denotes the centre of vital interests, i.e. the place with which personal relations are closer.

Consequently, the domicile (permanent home) of legal persons is the place of the registered office or the statutory social place. It constitutes PEs such as:

• The head office of management.• A branch.• An office.• A factory.• A workshop.• A mine, quarry, or other place of extraction of natural resources.• A building or construction site or assembly.• A facility used for storage, display, or delivery of goods belonging to the business.• A warehouse belonging to the business, stored for storage purposes, and of display

of delivery.• A fixed installation of business used for the purpose of purchasing goods.

Other taxes

Value-added tax (VAT)The VAT rate applicable in Chad is:

• 18% on all taxable operations.• 0% on exports and their related international transportations.

An operation performed in Chad that constitutes an economic activity and for which payment is made, unless included in the list of exemptions in the law governing VAT, is liable for VAT, even if the residence of the natural person or the registered office of the legal entity is located outside Chad.


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The VAT law provides a list of transactions exempted from VAT that includes, among many others, the following:

• Sales of products that are directly made by farmers, cattle farmers, or fishermen to consumers, farming, and fishing operations.

• Import operations and sales of newspapers and periodicals, other than the advertising revenues.

• Leasing transactions.• Sales of gasoil and petrol by the refining company of N’Djamena.

There are no specific rules relating to refunds to non-residents.

There are no refunds of the excess in practice. If the amount paid exceeds the VAT payable, the credit can be offset against the VAT payable as long as 12 months have not passed since the birth of this credit. After that, it becomes a loss, which is deductible under corporate tax. The deductibility of a VAT credit under corporate tax is subject to a certificate of VAT credit delivered by the General Tax Director after a VAT audit.

Withholding VAT on the amount of VAT due on the payments within the framework of public marketsThe 2017 financial law has instituted withholding VAT at the rate of 80% on the amount of the VAT due on the payments made within the framework of the public markets.

This VAT shall be withheld by the Public Treasury at the time of the payments of the services suppliers or goods providers.

Customs dutiesThe tax basis of customs duties corresponds with the customs valuation, namely the selling price of the goods plus cost of delivery to Chad (costs of insurance, transportation, etc.).

The rates of customs duties depend on the nature of the goods and range from 5% to 30%. These rates can be summarised as follows:

• Goods of first need (basic necessities): 5%.• Raw materials and goods of equipment: 10%.• Intermediate and miscellaneous goods: 20%.• Consumer goods: 30%.

Excise dutyExcise duty applies to goods of great consumption: cigarettes, drinks (water, beer, and wine), cosmetics, and luxury products, and transactions of mobile companies, which are the legal taxpayers. Excise duty rates depend on the nature of the goods and range from 5% to 25% of the value of the good.

Some of the rates are as follows:

• Water: 5%.• Beer and wine: 25%.• Perfume, jewellery, electronic devices (except computers, telephones etc.), private

vehicles with an engine capacity above 1600 cm³, and weapons: 20%.• Compound alcoholic preparations: 25%.


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• Tobacco (all types): 25%.• Turnover of mobile companies (legal taxpayers) realised on their transactions: 18%.

This value differs depending on the origin of the good. If the good has been manufactured in the CEMAC zone, the value corresponds with the selling price charged by the manufacturer. If the good is imported into the CEMAC zone, the value is the sum of the freight value plus insurance costs and customs duties.

This value constitutes the basis of the calculations of the excise duty.

Real property taxThe annual real property tax differs according to whether it is a built or an unbuilt property and whether it is located in N’Djamena or elsewhere. The tax is imposed in the municipality where the property is situated.

The tax rate on built property is 10% in N’Djamena and 8% elsewhere.

The tax rate on unbuilt property is 21% in N’Djamena and 20% elsewhere.

The calculation basis is the potential revenue of that property. The potential revenues correspond to four-fifths of the rental value, the rental value being 10% of the market value. For rural unbuilt property, the market value is fixed to XAF 50,000 per hectare.

Some temporary exemptions are granted to new buildings or additions to constructed buildings after 1 January 1968 from this tax in some conditions. In case of construction or reconstruction, owners can benefit from temporary exemptions as follows:

• If the villa is owned by a corporation: 2 years.• If the villa belongs to an individual and put on rental: 2 years.• If the villa is built or rebuilt for commercial and industrial use: 2 years.• New construction or reconstruction and additions to buildings for a holiday resort,

for approval (accreditation), or for furnished rent are excluded.

Accommodation taxThe person occupying a building (owner or tenant) has to pay the following amount as accommodation tax annually:

Type of construction N’Djamena (XAF) Elsewhere (XAF)For constructions in local material 6,000 3,000For hard or semi-hard constructions 20,000 10,000For R+ hard constructions 30,000 and a supplement of

10,000 per level10,000 and a supplement of

5,000 per level

Transfer taxFixed or proportional transfer duties must be paid on the transfer of ownership of estates, personal property, and real property. Transfer duties are also due on contributions to companies and divisions of property. The proportional fees for the following transfers are:

• Transfers of ownership interests in companies whose capital is not divided into shares: 3%.

• Transfers of shares, founders’ shares, or profit shares: 3%.• Transfers of bonds of companies and legal entities: 3%.


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• Transfers of the right to lease or of the benefit of a promise to lease real estates: 10%.• Transfers of goodwill (business) against payment: 10%.• Transfer of leases of real estate: 10%.• Transfers of pension against payment: 10%.• The undivided shares and portions of real property acquired by bidding are subject

to land transfer tax against payment at 10%.• Transfers and delegations of term debts: 3%.• The perfect transfer of notarised promissory notes containing the creation of a

mortgage and other mortgage bonds: 5%.• Real estate returns are subject to land transfer (against payment) tax of 10%.• Transferring ownership for consideration of movable property: 6%.• Judicial transfer (against payment) of ownership or usufruct of both developed and

undeveloped land is 10%.

These transfers are generally registered within three months of their entry into possession.

Stamp dutiesStamp duties must be paid on each civil or judicial document intended to be used as evidence. Stamp duty is generally XAF 1,000 per page.

All claims for reimbursement submitted to the Board are subject to a stamp duty of XAF 2,000.

Requests to the administration for professional competitions are subject to a stamp duty of XAF 1,000.

Applications for allocation of land are subject to a stamp duty of XAF 1,000.

Invoices for supplies to the administration of less than XAF 1 million are subject to a stamp duty of XAF 5,000. The same applies to certificate of sales of reshaped vehicles and materials of vehicles of the state and public bodies.

All invoices that accompany an order of the administration in lieu of a service contract or a public market are subject to a stamp duty of XAF 5,000.

Any application, other than those mentioned above, addressed to the tax authorities is subject to a stamp duty of XAF 2,000.

Furthermore, the stamp duties on the following official documents are as follows:

Documents Issuance fees (XAF) Stamp fees (XAF) Total (XAF)Passport 77,500 7,500 85,000

Residence card 292,500 7,500 300,000

Particular passes - 6,000 6,000Extension of stay 5,000 - 5,000

National identity card 9,000 1,000 10,000

Passport for adult Chadian abroad 97,500 7,500 105,000

Passport for minors abroad 45,000 7,500 52,500

Passport for minors in Chad 35,000 7,500 42,500


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Registration dutyThe registration duty applies to certain deeds listed by the General Tax Code (GTC). The assessment basis depends on the nature of transactions, and the rate varies from 0.25% to 15%.

Payroll taxEmployers in Chad are required to make monthly contributions of 7.5% of the total amount of salaries and fringe benefits paid to permanent employees.

Social security contributionsThe monthly contribution to Chad’s Social Security Funds is 16.5% of total salaries for the employer (upper limit: XAF 82,500 per month) and 3.5% for the employee (upper limit: XAF 17,500 per month), withheld by the employer.

Apprenticeship taxEmployers in Chad are required to make monthly contributions of 1.2% of the total amount of salaries and fringe benefits of their employees (permanent and temporary) to the National Professional Training Funds (FONAP).

Business licence taxAny natural person or corporate body carrying on a trade, industry, or profession in Chad shall be liable to a business licence tax. The business licence tax is paid annually and is assessed as follows:

• A determined duty based on 0.1% of the first XAF 2 billion of turnover of the fiscal year N-2; above that, only 1/10 of the turnover is taxed at the rate of 0.1%.

• 10% of the rental value of the premises.• 10% of the determined duty for the National Social Security Funds.• 7% of the determined duty for the Consular Commercial Chamber.• XAF 480 per year for the Rural Intervention Funds.• 10% of the annual rental value of business premises.

For a new company, the determined duty is calculated based on the projected turnover estimated by the taxpayer as compared to similar activities or those achieved during the first 12 months of activity.

The business licence tax is due 31 December of the tax year.

Special tax on oil productsPrior to 2017 fiscal year, the 2016 financial law instituted Stabilisation Funds on oil products (in French: Fonds de Stabilisation sur les Produits Pétroliers). The related rates are as follows:

• Gasoil: XAF 101 per litre.• Jet A1: XAF 101 per litre.

The 2017 financial law has cancelled the Stabilisation Funds on the oil products and instituted the special tax on oil products (in French: Taxe Spéciale sur les Produits Pétroliers). The rates of this tax is as follows:

• Petrol : XAF 50 per litre.• Gasoil: XAF 50 per litre.• Jet A1: XAF 50 per litre.


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This tax is due at the time of consumption and is supported by the final consumer. It is not deductible for the marketers.

Tax for the modernisation of airport infrastructuresPrior to fiscal year 2017, the 2016 financial law instituted the tax on boarding, which has been cancelled by that of 2017.

The 2017 financial law instituted the tax for the modernisation of airport infrastructures, which rates are as follows:

• Economic class tickets for flight: XAF 10,000.• Intermediary or business class tickets for flight: XAF 15,000.

This tax is due at the time of payments of the tickets for flight and is supported by the buyer.

Tax on behalf of the African Union on importsThe 2017 financial law instituted a tax at the rate of 0.2% on imports out of the Africa area on behalf of the African Union.

The imports of the products of first necessities are not subject to this tax.

The applicable modalities shall be precised by a ministerial decision.

Branch income

Subject to international conventions, the profits realised by companies that do not have their tax residence in Chad (i.e. branches) are deemed distributed in respect of each fiscal year to the persons who do not have their tax residence in Chad and, to this effect, are subject to WHT at the rate of 20%.


Inventory valuationStocks shall be valued at cost price; however, if the market price is lower than the cost price, the undertaking shall make provisions for depreciation of inventory.

Capital gainsCapital gains are taxed at 20% via WHT.

Dividend incomeDividends are taxed at 20% via WHT.

Interest incomeThe interests on sums of money left or placed at the disposal of the company by shareholders in addition to their capital shares, irrespective of the form of the company, are treated as deductible charges within the limit of those calculated at the rate of States of Central Africa Bank advances increased by two points.

Foreign incomeIncome from other countries is not liable to tax in Chad.


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Deductions

Expenses are deductible under the following conditions:

• They must lead to a reduction of the assets.• They must be incurred in the interest of the enterprise.• They must be regularly included in the accounts of the entity and justified by

receipts.• They must be related to the fiscal year within which they are incurred.• They must not be considered as non-deductible by the law.

DepreciationAccording to accountancy principles, depreciation is calculated based on the probable length of use of the asset. The straight-line system of depreciation is applicable, and rates vary according to the nature of the business activity concerned and the normal useful life of the assets involved.

From an accountancy point of view, it is possible to depreciate whatever amount corresponds to the above mentioned principles. However, from a tax point of view, depreciation (i.e. enabling a deduction of the depreciated amount from the taxable income) is only possible under the condition that the depreciation has been entered into the statement of accounts. Therefore, only a legal entity in Chad owning the assets is able to depreciate its assets. In addition, if depreciation in the statement of accounts is higher than the depreciation authorised, the difference is not deductible and has to be reinstated in the taxable income.

The starting point for depreciation is the day of first use. If this date is not the first day of the financial year, the first year’s depreciation is reduced pro-rata.

It should be noted that, despite the above, goods that are leased are depreciated at the rate that they are paid for.

Depreciation of goods that are made available for free to managers and supervisors of the business are deductible if the corresponding benefit in kind is declared.

The sum of depreciation applied to the acquisition or creation of an asset cannot, at the end of each financial year, be less than the amount of depreciation calculated on the linear system and spread out over the normal usage period.

Depreciation in loss-making years may be carried forward to the first profitable financial year, and to subsequent years if necessary.

Major repairsThe major repairs carried out by a company on the assets listed in the balance sheet are only deductible by way of depreciation.

GoodwillThere are no provisions for goodwill as regards deduction of expenses.

Start-up expensesThere are no provisions for start-up expenses.


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Interest expensesInterest paid for the depositing of funds by a shareholder is deductible within the base rate of the central bank plus two points, calculated on the basis of the share capital.

Bad debtProvisions for credit customers are deductible if judicial actions have been taken for the recovery of the said debt.

Charitable contributionsDonations and liberalities are deductible within a 0.5% limit of the annual turnover, net of tax, when they are duly justified. However, a decision from the Minister of Finances is required.

Fines and penaltiesTax and customs penalties are not deductible.

TaxesIncome taxes are not deductible.

Structural VAT creditsStructural VAT credits are deductible if the following conditions are met:

• The company justifies the origin of the VAT credits by producing the statement of the deductible VAT accompanied by the original invoices and the receipts of the customs.

• An attestation of VAT credit, signed by the General Tax Director, is produced.

Other significant itemsThe following expenses are not deductible:

• Provisions for laying off employees.• Provisions for self-insurance.• Insurance premiums paid for a third-party.

The following expenses are not fully deductible:

• Foreign social security contributions are deductible only within 15% of the base salary of the expatriates when related to a compulsory retirement plan. Nonetheless, Chad’s social security contributions are fully deductible.

• Restaurants, hotels, receptions, and related costs are deductible within a 0.5% limit of the turnover, net of tax.

• Travel expenses for expatriates and their families for vacation are deductible, limited to one trip per year.

Net operating lossesLosses arising from normal business activities of the company are deductible and may be carried forward for up to three years. Carryback of losses is not permitted.

Payments to foreign affiliates (foreign technical assistance and administrative fees)There is a specific regulation relating to general administrative and foreign technical assistance costs that are subject to a 10% limitation of deductibility. The scope of the 10% limitation covers study expenses, technical assistance, and other expenses,


Chad

including commercial and industrial royalties, paid to the head office of an enterprise established outside Chad and outside the CEMAC zone.

These costs are only deductible within 10% of the intermediary fiscal profit (accounting profits plus non-allowable charges/costs) prior to their deduction if the following conditions are met:

• The details of these general administrative and technical assistance costs shall be annexed to Table 22 of the annual tax returns (Déclaration Statistique et Fiscale or DSF).

• The details shall present the amounts paid according to the activities’ sectors and countries where the company carries out its activities.

Group taxation

There is a specific taxation of groups within the CEMAC area.


• The stocks or shares owned by the parent establishment represent at least 50% of the capital of the subsidiary firm.

• The parent and subsidiary firms have their registered office in a CEMAC state (i.e. Cameroon, Central African Republic, Chad, Gabon, Equatorial Guinea, and Republic of Congo).

• The stocks or shares allotted at the time of issue are still registered in the name of the participating company that undertakes to retain them for at least two consecutive years in registered form.

Transfer pricingThe Tax Code acknowledges that dependent or controlled companies may transfer benefits indirectly to their company abroad it is dependent on or to the company abroad it is controlled by.

In order to calculate the real benefit, the indirectly transferred benefits (by means of increase of purchase price or decrease of sales price to the controlling company or by any other means) are incorporated into the result established by the accounts.

If the tax administration does not have enough precise elements to determine the benefit, it will establish the taxable benefit by way of comparison to companies normally operated in Chad.

The Tax Code provides further, in accordance with CEMAC regulation, that interest paid to shareholders on sums that they lend over and above their share capital is deductible at the rate for loans allowed by the central bank increased by two percentage points. This deduction is only possible if the amounts lent do not exceed 50% of the share capital.


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Thin capitalisationChad applies Organisation for the Harmonization of Business Law in Africa (OHADA) regulations with regards to thin capitalisation rules.

In cases where the equity capital gets, due to the recorded losses in the summarising financial statement, below 50% of the share capital, a shareholder consultation has to be organised within four months to decide upon a potential anticipated dissolution of the company.

If the dissolution is excluded, the company has to reconstitute its equity capital up until it equals 50% of the share capital within the two years following the date of the end of the loss-making financial year. Otherwise, provided it stays above the legally required share capital minimum, the company has to reduce its share capital of an amount at least equal to the losses that it has not been able to charge against reserves.

In cases where no decision has been taken regarding dissolution, any interested person may claim dissolution of the company in front of a court. Any interested person is allowed to bring a legal action if the reconstitution of the equity capital has not taken place within the legal timeline.

This action ceases to exist the day the cause for dissolution ceases to exist or if the court has ruled on such grounds.

Controlled foreign companies (CFCs)There are no provisions relating to CFCs in Chad.


Chad does not offer any tax incentives.

Foreign tax creditThere are no provisions for foreign tax credit in Chad.

Withholding taxes

WHT on commerce of retail goodsA 4% WHT rate applies to natural persons and legal entities that purchase or sell wholesale or retail goods. This WHT also applies to imports.

Companies with more than one shareholder that regularly pay their taxes may apply for a suspension of payment of WHT (renewable every three months).

WHT on capital gains and dividendsWHT on capital gains and dividends is 20% and applies to residents and non-residents.

WHT on income of non-residentsWHT on income of non-residents is 25%. It applies to income of any legal or natural person who is not resident in the CEMAC area (i.e. Cameroon, Central African Republic, Chad, Gabon, Equatorial Guinea, Republic of Congo).


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The income of legal persons (companies) whose tax residence is in the CEMAC area is exempted from the WHT. However, the income of natural persons whose tax residence is in the CEMAC area is subject to WHT at the rate of 20%.

WHT on personal incomeThe employer withholds tax on personal income every month.

WHT on income from public procurement contracts financed from outside of the country and income from petroleum projectsChad’s lowest WHT rate on income is 12.5%. It applies in either of the following two cases:

• On income of agents, consultancy firms, and corporations executing a contract within the framework of public procurement contracts financed from outside of the country.

• On income of companies working within the petroleum projects.

The WHT at the rate of 12.5% does not apply to dividends and interests, but only to royalties paid to non-residents within the petroleum projects.

The dividends paid to residents and to non-residents is subject to WHT at the rate of 20%.

The interests paid to non-residents whose tax residence is outside the CEMAC area are subject to WHT at the rate of 25%, but they are exempted from WHT if they are paid to the CEMAC area’s residents.

WHT on interests of bonds, certificates, and notesBonds and notes are subject to a WHT of 20% of the interests for registered bonds and of the interests for bearer participation certificates.

WHT on rentWHT on rent is 15% for residents and 20% for non-residents when the monthly rent paid is up to XAF 1,000,000.

WHT on rent is 20% for residents and 25% for non-residents when the monthly rent paid is between XAF 1,000,001 and XAF 4,000,000.

WHT on rent is 25% for residents and 30% for non-residents when the monthly rent paid is higher than XAF 4,000,001.

WHT on interconnection expenses of mobile companiesWHT on interconnection expenses of mobile companies paid to non-resident companies is 25%.

WHT on rental of equipmentThe rate of WHT on rental of equipment held by natural persons is 20% applied on the total amount paid, including the major repairs, which, by nature, should be normally supported by the owner, when these repairs are supported by the tenant without deduction from the price of the rental.

Tax treatiesChad has one tax treaty with the member states of CEMAC.


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WHT benefits on payments made to CEMAC residentsTo avoid double taxation of incomes of CEMAC origin, the provisions of the Convention provide a principle of exclusive taxation in one country.

Regarding revenues of services, they will be taxed only in the country of location of the beneficiary of incomes (i.e. no WHT in the country of payment of incomes).

Regarding incomes from securities (dividends, interest on deposits, interest on bonds, etc.), they will be taxed only in the country of distribution (i.e. no WHT in the country of payment of incomes).

Tax administration

Taxable periodCompanies must, in principle, close off their yearly financial accounts on 31 December each year. Where a company begins operations later in the year (say June 2017), it has the option of operating for a minimum of 12 months or a maximum of 18 months to close off its accounts.

Tax returnsCorporate tax returns are due on 30 April, at the latest, with the possibility to apply for an exceptional extension to 15 May.

Payment of taxCertain taxes are considered instalment payments of corporate tax. Once the amount of corporate tax is known, these payments are deductible from the amount and only the balance has to be paid on 15 May. These taxes include the minimum corporate tax, the quarterly instalment payments, and the 4% discharge for retail goods, if applicable.

Minimum corporate tax (monthly and quarterly)The minimum corporate tax shall be filed and paid, at the latest, on the 15th day of the month following the month of achievement of the turnover for companies subject to the normal tax regime and quarterly for companies subject to the simplified tax regime.

However, for the payment of the floor rate, payment may be made in four instalments of XAF 250,000 each, 15 days after the end of the quarter.

If this instalment payment exceeds the annual corporate tax, the remainder is lost.

One third instalment payments (paid three times quarterly)Corporations that fulfil the following conditions are subject to quarterly instalment payments:

• Liable to corporate tax.• Made a profit during the prior fiscal year.• The amount of the corporate tax of the prior fiscal year is superior to at least XAF

100,000.

The quarterly instalment payments are equal to one-third of the difference between the corporate tax due during the prior fiscal year and the minimum income tax paid during the same period.


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The payment must take place before the 15th day of May, August, and November.

Tax audit processIn brief, the tax audit exercised by the Direction Générale des Impôts (Directorate General of Taxes) in Chad consists of three different types of control:

• Audit of monthly, quarterly, and annual tax returns, which requires no prior notice by the tax administration to the taxpayer.

• Spot checks, which are done on one or more taxes on a group of operations over a period of less than one fiscal year. Prior notice is obligatorily given by the tax administration to the taxpayer.

• General verification, which is the most important audit and needs prior notice by the tax administration to the taxpayer. This type also involves the other two audits aforementioned, so that the taxpayer can perform the necessary adjustments on previous declarations.

In all the audits, there are contradictory and contentious proceedings. The contradictory proceeding is engaged when the tax administration finds deficiency, inaccuracy, or omission in the information on the tax returns and notifies the taxpayer thereof. The contentious proceeding, on the other hand, is engaged when the taxpayer, in turn, disagrees with the observations of the tax administration and challenges its position directly with the tax administration and/or with the courts.

Contentious claimTaxpayers who dispute the justification or the amount of tax levied on them may, if they had formally filed the claim under certain conditions, obtain stay of payment of the disputed portion of the said taxes, on condition that they:

• expressly request respite of payment in the complaint• state the amount or the basis of the tax relief requested• provide supporting documents showing payment of the undisputed portion of the

tax and 15% of the disputed one, and• provide the bank guarantee obtained from a bank located in Chad.

Statute of limitationsAccording to Article R. 33 of the GTC of Chad:

“The total or partial omissions found in the tax base, the inadequacies and inaccuracies, or the taxation errors, can be repaired by the tax administration until the end of the third year following that in which the tax or fee is payable.

Furthermore, any omission or insufficiency of tax revealed by a proceeding before the criminal courts or by a contentious claim may, without prejudice to the general period of repetitions established above, be repaired until the end of the third year following the revelation of the facts.”

Congo, Democratic Republic of the 83www.pwc.com/taxsummaries

Congo, Democratic Republic of the

PwC contact

Emmanuel LebrasPricewaterhouseCoopers Tax & LegalImmeuble Midema13, avenue Mongala, GombeKinshasa, Democratic Republic of the CongoTel: +242 05 557 76 76Email: [email protected]


Double tax treaties (DTTs)The tax treaties for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on incomes between the Democratic Republic of the Congo (DRC) and South Africa, and between the Democratic Republic of the Congo and Belgium, have been effectively implemented.


Corporate income tax (CIT) is paid on profits realised by a company or an individual that carries out any operational activity in the country.

The Democratic Republic of the Congo levies taxes on resident companies and individuals on a territorial basis (or source basis) of taxation. Foreign-sourced profits (e.g. dividends received from a foreign subsidiary) are thus exempt from CIT.

Non-resident companies or individuals that carry out an activity in the Democratic Republic of the Congo are taxable on profits they realise through permanent establishments (PEs) or fixed establishments that are located in the Democratic Republic of the Congo.

The CIT rate is 35% (30% for mining companies).

Minimum income taxThere is a minimum tax of 1% of the yearly turnover for companies other than micro-sized and small-sized companies (see below for the rates for micro-sized and small-sized companies).

The minimum tax applies to loss making companies as well as companies with CIT of less than 1% of turnover. Companies that carry on business but realise no turnover in a concerned year are also subject to the minimum income tax as follows:

• 2.5 million Congolese francs (CDF) for large companies.• CDF 750,000 for medium-sized companies.• CDF 30,000 for small-sized companies.

Note that turnover includes, inter alia, all profits and interest received, as well as exceptional profits, in essence, any credits on the income statement that have the nature of income or gain, as well as capital gain.

PwC Worldwide Tax SummariesCongo, Democratic Republic of the84


Micro-sized and small-sized companiesMicro-sized companies are those whose annual turnover is less than CDF 10 million, and small-sized companies are those whose annual turnover is between CDF 10 million and CDF 200 million.

Micro-sized companies are subject to an annual lump-sum tax amounting to CDF 50,000.

Small-sized companies are subject to CIT at the following rates:

• 1% of turnover for the supply of goods.• 2% of turnover for the supply of services.

Business terminationIn the event of business termination, companies pay a lump-sum amount as follows:

• CDF 500,000 for large companies.• CDF 250,000 for medium-sized companies.• CDF 30,000 for small-sized companies.

Tax on rental incomeRental income related to buildings, houses, offices, premises, warehouses, etc. is administered at the level of every provincial tax authority. Gross rental income is subject to tax at a flat rate of 22% in the province of Kinshasa.

In order to secure the payment of this tax, the Tax Code has put into practice a withholding tax (WHT) system. In the province of Kinshasa, the tenant is liable to withhold 20% of the rentals paid and to remit this tax to the authority. The tax authority may challenge rentals that are not at arm’s length by referring to the rental prices of similar houses.

The rent of buildings and land owned by real estate companies is subject to CIT.

Local income taxesThere are no local or provincial government direct taxes on income (except for the tax on rental income that is administered at the level of provinces).

Corporate residence

Companies incorporated in the Democratic Republic of the Congo are considered resident companies, regardless of where they are managed and controlled.

Permanent establishment (PE)A non-resident company is deemed to have a PE in the Democratic Republic of the Congo in either of the following cases:

• It has a material place of business (e.g. head office, branch) or any other fixed or permanent installations producing revenues in the Democratic Republic of the Congo.

• Without having a material place of business, it carries out a professional activity under its own name during a period of at least six months.



Other taxes

Value-added tax (VAT)

VAT ratesThe VAT base includes whatever sums, amounts, goods, or services that are received as compensation for an operation; this involves subsidies as well as any other costs, taxes, rights, or any related levies, whatever their nature, excluding the VAT itself. For imports, VAT is normally charged on the customs value of the goods concerned, plus the customs duty and import-related expenses. There are two rates:

• A standard rate of 16%.• A rate of 0% on exports and assimilated transactions.

VAT exemptionsThe main exempted activities include some banking and financial services, education, medical services, charitable and social activities, and transactions that are subject to a specific taxation.

The import of wheat flour, corn, and corn flour; the local sale of bread, wheat flour, corn, and corn flour; the domestic sales of animals; and the import and sale of inputs for agriculture are also VAT-exempt.

Application to non-residentsA non-resident having no PE in the Democratic Republic of the Congo but who raises an invoice on a DRC resident is required to appoint a VAT representative who is based in the Democratic Republic of the Congo and who will be accountable for the payments and collections that rest with the non-resident supplier. Failing to appoint a representative will result in the authorities holding the DRC resident customer liable for the payment of VAT that is due by application of a reverse-charge mechanism.

Mechanisms of VATAn entrepreneur is entitled to offset VAT paid on purchase of goods and services used for business purposes against VAT charged on sales of goods and/or services. Businesses exempted from VAT on part of their sales are, in principle, entitled to deduct VAT paid on a pro rata basis (i.e. the ratio between the turnover related to VATable activities and the global turnover).

No VAT credit is allowed for expenditures not necessary for business purposes, nor on some specific expenditure (e.g. except in some specific circumstances, fuel, accommodation or entertainment for directors and employees, gifts, company cars).

VAT returns must be filed by the 15th day of each month in respect of transactions made the previous month. The net amount of VAT payable must be remitted to the tax authorities together with the return. If VAT paid exceeds VAT charged, the resulting VAT credit can be carried forward.

Refund of VAT can only be requested in some very specific circumstances.

Customs duties

Customs duty on importsCustoms duty on imports is calculated on the cost, insurance, and freight (CIF) value of the goods. The customs tariff on imports is the following:



Example of goods Customs tariff rate (%)Chemical products

5Machine toolsMaterial for transport of merchandiseFlour

10AggregatePetrol, diesel, keroseneClothing

20FurnitureCigarettes

Imported goods are also subject to the following levies at the time of border crossing:

• VAT on imports (wheat flour, corn, and corn flour are exempt from VAT).• For certain goods, consumption and excise duties.• Various para-fiscal levies.

Customs regulation also allows for certain suspensive rates, such as temporary admission.

Customs duty on exportsCustoms duty on exports applies to certain categories of products produced locally, which are:

• Crude coffee.• Electric current.• Mineral products and their concentrates.• Mineral oils.• Timber.• Scrap metals.

The bond value on exports of the said goods is fixed either by ministerial decree upon suggestion of the customs administration, or in the absence of a decree, by reference to the value of the goods when they leave the Democratic Republic of the Congo.

The rates of customs duties on exports are the following:

Example of goods Customs duty rate (%)Coffee

1.0Electrical energyDiamond (small-scale mining)

1.5Gold (small-scale mining)Diamond (industrial mining)

3.0Gold (industrial mining)Minerals (copper, nickel, lead, etc.) 5.0Timber 6.0Silver

10.0Platinum



Consumption and excise duties

ScopeThe following goods are affected by consumption and excise duties:

• Alcohol and alcoholic drinks.• Carbonated drinks.• Mineral oils (petrol, oil, jet A1, diesel, etc.).• Lubricating oil and lubricant.• Liquid for hydraulic brakes and other liquids for hydraulic transmissions.• Perfumes.• Cosmetics and make-up products.• Hair preparations.• Soaps, organic surface-active agents, lubricating preparations, polish, and creams

for footwear.• Plastic articles.• Rubber articles.• Tobacco.• Vehicles.• Telecommunications industry’s products.

Applicability and tax baseConsumption and excise duty is applicable to:

• the production in the Democratic Republic of the Congo of consumer goods subject to duty and

• the import of these products to the Democratic Republic of the Congo.

Consumption and excise duties accrue on imports, as do customs duties and VAT.

On imports, the tax base on consumption and excise duties is the raised CIF value of the customs duties, except for mineral oils, for which the tax base is the average fiscal threshold price.

RatesThe rates of consumption and excise duties vary from 5% to 60% according to the products concerned.

Excise and consumption duties Tax basis Rate (%)Beer Selling price 27/35Grape juice Selling price 30Cider and poires and other alcoholic beverages Selling price 30/45Juice and lemonade Selling price 8/10/15Ethylic alcohol unaltered of less than 80%, spirits, and liquors Selling price 60Ethylic alcohol unaltered of less than 80%, spirits, and liquors (medical and industrial)

Selling price 5

Ethylic alcohol unaltered of more than 80%, perfumes, and scent Selling price 15Aromatic and other grape fruit Selling price 37Tobacco manufactured Ad valorem rate 20/40Brand new vehicles Ad valorem rate 2Old vehicles from 1 to 5 years Ad valorem rate 5Old vehicles from more than 5 years Ad valorem rate 10Soaps, cigars, cream, and shoes Ad valorem rate 10



Excise and consumption duties Tax basis Rate (%)Beauty products and make-up items Ad valorem rate 10/15/20Mobile phone related products Ad valorem rate 10Chemical industry products Ad valorem rate 10Plastic stuffs (plastic bags and sacks) Ad valorem rate 20

Para-fiscal taxesVarious para-fiscal taxes shall be collected at the time of the import and/or export of goods in the Democratic Republic of the Congo.

The main applicable levies include the following:

• Administrative payment: 2% of the CIF value.• Congolese Control Office (OCC) payments: 1.5% of the CIF value, plus various other

administrative charges (Laboratory and analysis charges: 30 United States dollars [USD] maximum per test).

• Office de Gestion du Fret Maritime (OGEFREM) payment: 0.58% of the CIF value.• Funds for the Promotion of Industry (FPI) charge: 2% of the CIF value.• Cost of inspection from the Bureau of Inspection, Valuation, Assessment, and

Control (BIVAC): 1.5% of the free on board (FOB) value.

Property tax (IF)

ScopeIF is applicable to constructions (i.e. villas, apartments, and other buildings) and land located in the Democratic Republic of the Congo.

The person subject to this tax is the owner (bearer of title deed, holding, long leasehold, mining) of the construction on 1 January of the tax year.

The following types of property are exempt from IF:

• The public administrations of states, provinces, and towns, and public businesses disposing of no other resources than those coming from budgetary grants.

• Licensed religious, scientific, or philanthropic institutions.• Private non-profit making organisations involved in religious, scientific, or

philanthropic works and having obtained civil personality.• Foreign states as far as embassy offices, consulates, or lodgings of diplomats or

consuls are concerned (upon condition of reciprocity).

Some constructions and land are, notwithstanding, exempt from IF, notably depending on the status of their owner. From this perspective, the following are exempt from the property tax on goods:

• Constructions and land allocated by the owner exclusively for agriculture or farming, including constructions serving to prepare agricultural or farming products, on the condition that at least 80% of these derive from the farming of the property owner concerned.

• Constructions and land allocated by the owner for non-profit purposes:• for the execution of a public service, teaching, scientific research, the setting up

of hospitals, hospices, clinics, free clinics, or other similar charitable institutions• for chambers of commerce having obtained civil personality, or



• for social activity of mutual companies and professional unions (syndicates) having obtained civil personality, with the exception of locales providing accommodation, a public house, or any business.

Tax baseThe tax rates vary according to the nature of the goods (villas, buildings of more than one floor, flats, and other buildings) and locality ranks.

For villas, rates are fixed per square metre of area (between USD 0.3 and USD 1.5), while for other taxable items the contribution is determined on an inclusive basis (by floor, by flat, by unused land - in Kinshasa, the rate for one floor is USD 75).

Transfer taxThe transfer of a building in the Democratic Republic of the Congo gives rise to the payment, by the purchaser, of a registration duty amounting to 3% of the building’s value for a normal sale.

Stamp taxesThere are no stamp taxes in the Democratic Republic of the Congo.

Payroll taxesThe tax on wages is withheld at source by the employer.

Professional salaries tax (Impôt professionnel sur les remunerations or IPR)Any remuneration paid by a third party, whether public or private, provided it is not part of a service contract, and remuneration paid to executive shareholders, other than those involved in joint stock companies, are subject to payroll taxes and social contributions.

These remunerations includes salaries, wages, fees, benefits that do not represent reimbursement of professional expenses, gratuities, bonuses, and all other payments, fixed or variable, whatever their qualification.

All benefits, except for housing, transport, family allowances, and medical expenses, to the extent that they are legal or reasonable, are added to remunerations.

The taxable basis of the IPR for expatriate employees must not be lesser than the equivalent minimum wage applied in their home country.

The IPR is computed by applying a progressive tax scale. The overall tax shall not exceed, in any case, 30% of the taxable income.

It should be noted that there are other applicable rates depending on the activity or the nature of the compensations paid as remuneration:

• Proportional (10%): Applicable on severance pay.• Proportional (15%): Applicable on income of casual or temporary workers.

A rebate of 2% applies on the tax amount in terms of the number of the dependants.

Exceptional salaries tax (Impôt exceptionnel sur les rémunérations or IER)Employers of expatriate employees are subject to a tax of 25% on the expatriates’ remuneration (10% for mining companies). This amount is not deductible for corporate



tax purposes, except for mining companies. This tax was established to discourage employers from hiring expatriate staff. Expatriate staff are comprised of employees from countries other than those bordering the Democratic Republic of the Congo.

Filing and payment obligations for IER are identical as for IPR. Employers are required to file a return for payroll taxes on the 15th day of the month following the payment of the salaries. An annual payroll tax return also needs to be submitted on the 15th day of the year following the year of the payment of the salaries.

Failure or default or delay in paying due taxes gives rise to:

• Tax penalties: 20% to 40% of the tax amount due.• Tax interest: 4% per month of the tax amount due for late payment.

Social and employment contributionsSocial and employment contributions are as follows:

• National insurance fund (Institut National de Sécurité Sociale or INSS): 3.5% for the employees’ share (withheld at source by the employer) and 9% for the employer’s share.

• National office for professional training (Institut National de Préparation Professionnelle or INPP): INPP contribution is paid only by the employer at:• 3% for state-owned companies and private companies with up to 50 employees.• 2% for private companies with 51 to 300 employees.• 1% for private companies with over 300 employees.

• National office of employment (Office National de l’Emploi or ONEM): ONEM contribution is paid only by the employer at 0.2%.

The deadline to file and pay INSS, INPP, and ONEM return is the 15th day of the month following the month where the salary has been paid. In this regard, a single return is filed.

Business tax on pension capitalThe Finance Act 2016 has introduced a business tax of 10% based on pension capital. This tax applies to companies that implement a supplementary pension scheme in favour of employees of a certain category. The tax is triggered by the actual payment of the pension to the retired person and not at the time of their constitution (administrative position).

Branch income

Tax rates on branch profits are the same as on corporate profits. However, the costs incurred abroad by the head office of the branch are not deductible in the Democratic Republic of the Congo, and the branch is liable for taxation of deemed distributed profits on top of the CIT. On profits realised, a branch will pay both the 35% CIT and a 20% tax based on 50% of the net profits after deduction of CIT.


Taxable income consists of profits from any industrial, commercial, agricultural, or real estate operations entered into by a taxpayer in the Democratic Republic of the Congo,



as well as any increases in the net assets as a result of such activities and any increases derived from capital gains, either realised or not, of any nature and origin.

Inventory valuationSince adhesion of the Democratic Republic of the Congo into the Organisation for the Harmonisation of Business Law in Africa (OHADA) law treaty effective from 12 September 2012, or as from 1 January 2015 as far as accounting matters are involved, the inventory valuation methods permitted are as follows:

• The weighted average cost method.• Last in first out (LIFO).

Capital gainsThere is no specific tax regime applicable to capital gains in DRC Tax Law.

Capital gains are included in the corporate taxable basis of the local entity benefitting from the capital gain and, as such, subject to the 35% CIT (30% for mining companies).

Dividend incomeLocal-sourced dividends received by a local company are subject to a 20% income tax rate under standard law. Of the gross dividends received by resident companies, 90% are excluded from the CIT base, provided that such dividends have been subject to the 20% WHT.

Interest incomeLocal-sourced interest received by local companies is subject to the standard CIT regime.

Royalty incomeThe DRC Tax Law defines royalties as any kind of remuneration paid for the use, or for the concession, of a copyright on art works, scientific works, film works, brands, charts, any design or formula, or any secret process or recipe, as well as for the use of industrial, commercial, or scientific equipment and for intellectual property (IP) in any industrial, commercial, or scientific field.

The net amount of royalties is subject to WHT at the rate of 20%.

The tax base of royalties is calculated by deducting 30% from the royalties invoiced (i.e. the taxable basis will be 70% of the royalties invoiced).

Foreign incomeIf an income is considered as foreign-sourced, by application of the territoriality principle, it is not taxable in the Democratic Republic of the Congo.

Deductions

To arrive at taxable income, a taxpayer may deduct all costs actually incurred and which have served in the production of income of the company during the year.

DepreciationDepreciation of fixed assets used in the company’s operations may be deducted. Depreciation rates are as follows:



Nature of the good Depreciation rate (%)Buildings 2 to 5 (depending on the materials used)Machinery and equipment 10Vehicles 20 to 25 (depending on its use)Fixtures, facilities 10

Item’s nature Useful lives adopted (years)Building - general purpose or heavy equipment 20 to 25Building - specific purpose 8Computer equipment 3 to 5Software 3 to 5Motor vehicles 4 or 5Furniture and fittings 8 or 10Office equipment 10

As per the OHADA accounting law, however, assets should be depreciated as per the practice of the specific industry so as to depreciate each category of asset over the related normal expected useful life.

GoodwillThere is no specific provision relating to depreciation of goodwill in DRC Tax Law.

However, it is generally agreed that taxpayers can amortise goodwill in accordance with the linear system. The amortisation of goodwill rate is at the discretion of the taxpayer, but with the risk that the tax authorities can assess the rate otherwise.

Start-up expensesStart-up expenses are deductible, provided they are staggered over three or four years.

Interest expensesInterest costs on funds borrowed from third parties and invested in the company’s operations are, in principle, deductible. Further to the tax authorities, the deduction, in principle, requires an effective payment.

Please note that if the borrower is a private limited company and the lender is one of its shareholders, the interests on loans paid are not deductible from the CIT basis.

Moreover, assuming the terms of the loan are at arm’s length, the interest expense will be tax deductible in the Democratic Republic of the Congo provided that (i) the interest rate applied is less than the average international interbank market rate in the month the payment of the principal is made and (ii) the repayment of the principal takes place within five years from when it has been made available.

Bad debtAs a general rule, any kind of provisions (e.g. for bad debts) may not be deducted to arrive at taxable income.

Charitable contributionsCharitable contributions or donations are not deductible.

Fines and penaltiesLegal or administrative fines of any nature are not deductible.



TaxesIncome taxes are not deductible.

Other significant itemsThe following are examples of other expenses that may be deducted to arrive at taxable income:

• Rents actually paid and rental expenses linked to buildings or parts of buildings used in the exercise of the activity and any overhead derived from their maintenance, lighting, etc.

• Overhead costs from maintenance of furniture and equipment used in connection with the company’s activities.

• Wages, salaries, bonuses, and allowances of employees and workers used in the operation, as well as benefits in kind if these have been added to remunerations paid.

• Professional expenses incurred for the purpose of acquiring or maintaining income or earnings.

The following are examples of other expenses that may not be deducted to arrive at taxable income:

• Expenses of a personal nature (i.e. for private purposes), such as accommodation, school fees, leave indemnities, and any other expenses not necessarily incurred in the business.

• Expenses linked to rental properties as a landlord as well as related depreciation expenses.

Net operating lossesThe Finance Act for 2016 significantly amended the rules applicable to the offsetting and carryover of business losses. Henceforth, the new wording of Article 42-1° of the legislative-order n° 69/009, dated 10 February 1969, pertaining to the scheduled income taxes:

• repeals the prior authorisation of the tax administration to the offsetting of the losses carried over, but

• limits the offsetting to 60% of the tax profits made in the tax period prior to applying the deduction of said business losses, and

• no longer fixes a time limit for carrying over business losses.

There is no carryback loss regime in the Democratic Republic of the Congo.

Payments to foreign affiliatesAs a general rule, payments to foreign affiliates should be at arm’s length and transfer pricing documentation must be provided.

In respect of payments made by a local company to a foreign company for services (e.g. management services, technical assistance services), such expenses are deductible, provided that:

• the services rendered can be clearly identified• the services cannot be rendered by a local company, and• the amount paid for the service is not overstated and is commensurate to the nature

of the service itself.



Under the notion of abnormal acts of management, in addition to expenses, any form of benefits or aid granted to third parties without equivalent consideration for the company will be taxable, such as:

• Payments in the form of mark-ups or markdowns of purchases or sales.• Payments of excessive royalties without any equivalent consideration.• Income waivers (sales at a reduced price, free supply of services, grant of interest-

free loans or loans bearing insufficient interest).• Debt or commission waivers.• Debt forgiveness.• Benefits disproportionate to the service rendered.

Benefits or aids granted to companies within the same group may be deemed as normal acts of management, provided that the company shows the existence of its own interest in granting such benefits or aids. The sole general interest of the group is not sufficient to justify such practices.

Group taxation

There is no group taxation regime per the DRC tax legislation.

Transfer pricingThe following specific transfer pricing requirements are provided by the Tax Code:

• Interests on loans are not considered as deductible expenses for the borrower if the borrower is a private limited company and the lender is a shareholder.

• Where a local company is directly or indirectly controlled by a foreign company, any abnormal advantage given to the latter or related person is considered as an indirect distribution of profits and is then added back to the profits of the local company.

• In respect of payments made by a local company to a foreign company, for services (management services, technical assistance services), the Tax Code provides that such expenses may be deductible if (i) the services rendered can be clearly identified, (ii) the services cannot be rendered by a local company, and (iii) the amount paid for the service is not overstated and is commensurate to the nature of the service itself.

Finance Law 2015 imposes an obligation for companies established in the Democratic Republic of the Congo to have transfer pricing documentation on operating transactions with their affiliated companies located abroad. However, Finance Law 2015 only provides general guidelines for the information to be provided (i.e. structure of the group, selection of the most appropriate transfer pricing method).

Thin capitalisationThere are no thin capitalisation rules in the DRC tax legislation. However, it is provided in the Mining Code, from a general perspective, that, for the holder of a mining licence, the ratio of the funds borrowed against the amount of own funds does not exceed 75/25.

Moreover, the OHADA Treaty provides that shareholders’ equity should be above half of the company’s authorised share capital.



Controlled foreign companies (CFCs)No specific provision relating to CFCs are provided for in DRC law.


Investment CodeThe Investments Code allows for a certain number of tax, customs, and general order measures designed to favour direct investments (notably a CIT holiday during a defined investment period that would differ depending on the location of the investments). The preferential tax treatment measures of the Investments Code apply to direct investments and/or to entities that carry them out.

The regime of the Investments Code does not apply to numerous sectors, notably:

• Mining and hydrocarbon.• Banking and insurance.• Trade.

In order to take advantage of the provisions of the Investments Code, the following conditions must be fulfilled by the investor:

• The investor must be a Congolese legal entity.• The investment must be at least USD 200,000.• The investing company must comply with the rules and regulations relating to

environment.• The investing company must undertake to train local personnel in technical and

executive duties.• The investing company must undertake to create an added value of 35% of its initial

investment (within a stipulated time period to be agreed).

The application file is examined by the National Agency for the Promotion of Investments in the Democratic Republic of the Congo (ANAPI) and then sent to the Minister of Finance, who decides on the grant of the advantages foreseen in the Investments Code to the applicant, by the way of a Ministerial Order.

MiningThe Mining Code, completed by the Mining Regulations, sets out a preferential customs and fiscal regime that deviates on some important points from the standard regime.

The tax rules set-up by the Mining Code are supposed to be exhaustive and exclusive (it provides for all the taxes and customs duties owed to the Treasury by eligible entities, to the exclusion of any other form of taxation) and stable. This regime applies to all holders of a mining title or career, or for which a mining title or career is established, as well as to (i) affiliated companies carrying out mining activities and (ii) sub-contractors carrying out mining activities resulting exclusively from contracts concluded with the bearer of the mining title.

Among other tax preferential features of the Mining Code, the following apply:

• A reduced CIT rate of 30%.• Absence, under conditions, of WHT on interest paid in relation to loans

denominated in foreign currency and concluded abroad.



• A reduced 10% WHT rate for dividends.• A reduced 10% exceptional tax for expatriates’ remuneration.• A possibility to deduct some specific provisions.

The holder of a mining licence is also liable to mining royalties, computed on the basis of the amount of sales minus the cost of transport, analysis in relation to the quality control of the commercial product for sale, insurance, and cost relating to the sale transaction.

HydrocarbonsThe tax regime of oil companies is mainly provided in the production sharing contracts as well as in the Ordinance-Law 081-013 of 2 April 1981 bearing general regulations regarding Mining and Hydrocarbon.

The tax regime of oil companies is defined by the Law 15/012 dated 1 August 2015 pertaining to the general regime of Hydrocarbon.

Foreign tax creditNo specific provision relating to foreign tax credits is provided for in DRC law.

Withholding taxes

The following DRC-sourced payments are subject to a WHT in the Democratic Republic of the Congo:

• Dividends.• Royalties.• Interest. Note that if the interest is paid to a local company, the WHT does not apply

since the interest is included in the taxable income of the company charging such interest.

• Directorship fees.• Service fees paid to foreign individuals or entities not established in the Democratic

Republic of the Congo.

The Democratic Republic of the Congo has entered into DTTs with Belgium and South Africa. However, there are still discussions from the DRC tax authorities about their effective entry into force.

WHT rate and paymentsThe standard rate of WHT on dividends, royalties, interest, and directorship fees is 20%, which is based on the gross amount of sums paid.

If the payee does not withhold the tax from the amount invoiced and pays the tax of 20% directly, then the tax authorities consider that the basis of the 20% tax is composed of the amount invoiced plus the amount of the tax.

Consequently, in the case that the DRC company takes in charge the corresponding WHT, the WHT rate will be 25% (20/80) and the amount of tax will not be tax-deductible.



For royalties, the WHT is charged on the net amount of the royalties paid. The tax authorities consider that the net amount of royalties is calculated by deducting 30% from the royalties invoiced (i.e. the taxable basis will be 70% of the royalties invoiced).

The rate of WHT on amounts paid as compensation for services provided by foreign individuals/entities is 14%, which is based on the gross amount of sums paid.

The tax treaties for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on incomes between the Democratic Republic of the Congo and South Africa, and between the Democratic Republic of the Congo and Belgium, have been effectively implemented.

These treaties provide for reduced rates for dividends, interest, and royalties. It is also generally agreed that, by application of treaty, services furnished by providers being tax resident of those countries and being not established in the Democratic Republic of the Congo should not be subject to the 14% services fees WHT.

The table below provides a summary of different WHT rates:

RecipientWHT (%)

Dividends (1) Interest Royalties ServicesResident 10/20 N/A 20 N/ANon-resident (not established) 10/20 0/20 (3) 20 14Treaty:Belgium 10/15 0/10 10 N/ASouth Africa 5/15 (2) 0/10 10 0/14 (4)

Notes

1. A reduced 10% WHT rate for dividends is applied in the mining sector.2. The WHT charged shall not exceed 5% of the gross amount of the dividends if the beneficial owner

is a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends; 15% of the gross amount of the dividends in all other cases.

3. Interest paid by mining companies for loans borrowed in foreign currency abroad are exempt from WHT.

4. The term ‘permanent establishment’ likewise encompasses: …the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by an enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the contracting state for a period or periods exceeding in the aggregate 183 days in any 12-month period commencing or ending in the fiscal year concerned.

Tax administration

Taxable periodThe taxable period is 1 January to 31 December. This duration can be less than 12 months for the first accounting period beginning in the course of the first half of the calendar year. The same duration can also be more than 12 months for the first accounting period beginning in the course of the second half of the calendar year.

Tax returnsThe yearly CIT return is due by 30 April of the following year.

Payment of taxFinal payment of CIT is required when submitting the yearly tax return, which is due by 30 April of the following year.



CIT is payable in local currency through a DRC bank account by a wire transfer to the bank account of the Public Treasury. Consequently, in order to operate in the Democratic Republic of the Congo, the opening of a bank account in a DRC bank is mandatory. Moreover, the tax authorities require the bank account number of the applicant in order to grant a taxpayer number.

The collection of CIT is performed on an instalment basis. Collection by way of prepayment has been abrogated.

Instalments of corporate taxInstalments, in respect of CIT, apply to taxpayers who come under the supervision of two specific kinds of tax departments: the Directorate General (DGE), the department of the tax authorities in charge of the most important taxpayers, and the Centre des Impôts (CDI), tax centres.

These taxpayers have to pay two instalments each representing 40% of the CIT paid during the previous fiscal year (including the amounts assessed by the tax authorities). This, therefore, totals 80% of the CIT actually paid in the previous year. The first instalment must be paid before 1 August, and the second instalment before 1 December. Both payments are offset against the final CIT due for the fiscal year. The balance is paid when the tax return is submitted.

Small-sized companies shall make an advance payment amounting to 60% no later than on 31 January of the year following the one of the realisation of the concerned income. The balance payment is henceforth to be made no later than on 30 April. As a reminder, the rate of the CIT applicable to small-sized companies is 1% based on the turnover for enterprises selling goods and 2% for enterprises providing services.

Micro-sized companies shall pay an annual lump-sum tax amounting to CDF 50,000, no later than on 30 April of the year following the one of the realisation of the income.

Tax audit processIn practice, there is a tax audit every year.

Also, it happens that a taxpayer is subject to several controls (punctual, general, counter-verification).

Statute of limitationsSince 27 February 2013, a company may get audited up to four years after submission of a tax return (previously five years).

Topics of focus for tax authoritiesThe tax authorities shall discuss any relevant topic in relation to any tax.

There is no general statutory system of advance rulings.

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PwC contact

Prosper BizitouPricewaterhouseCoopers Tax & Legal88 Avenue du Général de GaullePointe Noire, Republic of CongoTel: +242 05 534 09 07Email: [email protected]


Further to the promulgation and publication of the 2017 Finance Act, the following new tax measures have been introduced/revised:

• Amendment to transfer pricing provisions, as follows:• Increase the amount of turnover triggering the obligation to produce transfer

pricing documentation to 500 million Coopération financière en Afrique centrale (Central African CFA) francs (XAF) (previously XAF 100 million).

• Setting up of a specific audit for transfer pricing.• Setting up of a lighter transfer pricing documentation filling requirement, to

be transmitted to the administration within six months from the filing of the summary financial statements.

• Setting up of a maximum three-year validity period for prior agreements on price, under certain conditions.

• Confirmation of the five different methods to set up the arm’s-length price, derived from the Organisation for Economic Co-operation and Development (OECD) recommendations.

• Definition of the applicable penalties in case of non-production or of insufficient production of the documents required as part of a transfer pricing audit.

• Confirmation of the administrative doctrine on the final tax nature of the deemed profit tax.

• Introduction of a penalty (XAF 3 million) for failure to indicate the administrative or forecast value of the contracts in the contracts by oil-subcontractors.

• Enhanced coercive measures for the delay of filing tax returns.• Precision on the applicable penalty (XAF 2 million per document) for failure to

translate accounting documents.• Reduction of the time limit for the taxpayer to appeal against a tax audit department

decision to one month (previously three months).• Precision on the due date for the dividends tax payment (i.e. within three months

from the decision of the assembly deciding on the distribution of revenue targeted in article 1 of CGI volume 2, book 3).

• Reducing rent tax to 5% annually, which will now be paid quarterly by 20 March, 20 June, 20 September, and 20 December of each year (previously one twelfth of the annual rents).

• Exemption of the tax on the transfer of funds for the purchase of foreign currencies by approved exchange offices.

• Precision on the triggering event for the tax on the transfer of funds on the sale of foreign currencies or the delivery to oneself or to third parties of foreign currencies and the debit of the sums in foreign currencies for payments by credit cards or other electronic means relating to bank accounts opened in the Republic of Congo.

• Increase in the terminal tax on incoming international traffic in electronic communications.

PwC Worldwide Tax SummariesCongo, Republic of100

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Congolese registered companies are taxed on the territoriality principle. As a result, Congolese companies engaged in business outside of the Republic of Congo are not taxed in the Republic of Congo on the related profits.

In the absence of a tax treaty stating otherwise, a non-resident company is liable for corporate income tax (CIT) on income realised in the Republic of Congo or derived from or resulting from work/services of any nature supplied or used in the Republic of Congo.

The standard CIT rate in the Republic of Congo is 30%, with certain exceptions.

A withholding tax (WHT) of 15% or 20% is imposed on income sourced in the Republic of Congo that is derived by foreign companies not necessarily engaged in activities in the Republic of Congo (see the Withholding taxes section for more information).

Minimum taxThe minimum tax payable is 1% of the annual turnover and cannot be less than XAF 1 million (XAF 500,000 if annual turnover is less than XAF 10 million).

A 2% minimum tax is payable by companies showing losses during two consecutive fiscal years. The 2% rate is applied to the sum of gross turnovers and products and benefits realised by the company in the most recent year in which it earned a profit. The 2% tax is not deductible for CIT purposes. However, in a company’s first profit-making year after incurring the losses, half of the 2% tax is deductible.

Industry specific ratesCompanies in the following sectors are exempt from CIT:

• Agriculture.• Agro pastoral.• Poultry or fishing.

A CIT rate of 25% applies for microfinance companies and private schools organised as a company.

A CIT rate of 30% applies for mining companies and real estate companies.

A CIT rate of 35% is applied on a deemed profit equal to 22% of the total gross remuneration (i.e. an effective tax rate of 7.70% of the taxable turnover made in the Republic of Congo) derived from services rendered by:

• Foreign companies that qualify for this simplified tax regime.• Local companies and branches that realise more than 70% of their annual turnover

with oil companies and oil services companies (in this case, the deemed profit tax is regarded as a final burden).

• Catering activities performed or delivered on petroleum sites.

Note that these companies revert to the general taxation regime the second year after the turnover realised with oil and gas sector companies becomes less than 70% of their annual turnover.


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A substantiated request shall be made to the Director General of Taxation between 10 October and 20 October of the second year, who shall reply, at the latest, by 15 December of the same year.

Headquarters operations of foreign companiesThe headquarters operations of foreign enterprises taxation regime is subject to prior approval by the tax authorities.

If enacted, headquarters operations of foreign enterprises and international groups will be granted a favourable tax status in the Republic of Congo. For those that qualify, CIT is charged on a deemed profit equivalent to a prescribed percentage of headquarters expenses, the percentage of which is currently unknown.

To qualify, the headquarters must be registered under the form of a public limited company or branch and must act solely for the benefit of the group in the area of management, control, or coordination.

Global flat taxationThe global flat tax is at 7% (of the annual turnover) or 10% (of the annual margin) and applies in lieu of the standard CIT rate. It is calculated on the annual turnover of very small and small enterprises taxable under the flat rate regime, whose turnover does not exceed XAF 100 million.

Local income taxesSee Business tax in the Other taxes section.

Corporate residence

A company is considered resident in the Republic of Congo if it has its registered office or principal office for all its activities in the Republic of Congo.

Permanent establishment (PE)There is no general definition for a PE. However, a PE has been defined by the double tax treaties (DTTs) signed between the Republic of Congo and France and the Customs and Economic Union of Central Africa (UDEAC) to include a place of management, a branch, an office, a factory, a workshop, and a mine, oil or gas well, quarry, or other place of extraction of natural resources.

Other taxes

Value-added tax (VAT)The Congolese VAT rate is 18%. In addition to VAT, a surtax calculated at the rate of 5% applies to the amount of VAT, which must be invoiced and paid at the same time as the VAT. Therefore, the VAT rate is globally 18.9%. The surtax is not deductible (final cost).

A reduced VAT at the rate of 5% is levied on importation.

Under the provisions of the VAT Law, all economic activities conducted in the Republic of Congo are subject to VAT, regardless of their purpose, profitability, or the legal status of the business performing them, and irrespective of whether these activities are habitual, occasional, or originate in the Republic of Congo or from a foreign country.


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Therefore, any person, natural or legal, engaged in an industrial, commercial, or professional activity is subject to VAT unless specifically exempt by law.

Section 8 of the VAT Law states that a service is considered as provided in the Republic of Congo when the service is used or exploited in the Republic of Congo.

In principle, an entrepreneur is entitled to credit the VAT paid on purchases of goods, equipment, and services for use in business (input VAT) against the total of the tax charges to one’s customers for deliveries made and services rendered (output VAT).

Taxpayers not exclusively carrying out transactions giving rise to a VAT deduction shall deduct VAT proportionally on the portion of the income pertaining to taxable transactions.

VAT payers carrying structural VAT credit have the obligation to do inventories in the presence of tax administration representatives for companies in October, failure to which the VAT credit shall be cancelled.

VAT payers have the obligation to provide an excerpt of their VAT trial balance of each account on VAT in accordance with the accounting system used by the company, failure to which all VAT deductions shall be added back.

Taxpayers without a Tax Identification Number (NIU) will lose the right to deduct the VAT on custom clearance duties on goods.

Exporters subject to VAT who realise more than 80% of their sale transactions abroad are obligated to withhold VAT paid on the purchases of goods and services (the list of exporters entitled to withhold VAT will be published by the tax authorities).

VAT resulting from tax assessment is not deductible.

VAT paid in cash in connection with invoices exceeding XAF 500,000 is not deductible.

A VAT return must be filed on a monthly basis before the 20th day of every month.

Customs dutiesWhen applicable, import duties are payable at rates ranging from 5% to 30% on the customs value of imported goods. Customs value is calculated on the cost, insurance, and freight (CIF) level.

Customs duties rates

Group Rates (%)Basic necessities 5Raw materials and capital goods 10Intermediate and miscellaneous goods 20Consumer goods 30

Additional entry taxesAdditional entry taxes apply on the importation of goods, such as:

• Economic and Monetary Community of Central Africa (CEMAC) integration tax: 1% on CIF value.


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• Statistic tax: 0.2% on CIF value.• Organisation for the Harmonisation of Business Law in Africa (OHADA)

contribution: 0.05% on CIF value.• Economic Community of Central African States (CEEAC) contribution: 0.04% on

CIF value.

2% customs duties reduced rateIn addition to a VAT exemption on imports, as an exceptional measure, a 2% customs duty reduced rate on imports of machinery and equipment used for agriculture, flower, forest, and fish industries, as well as fertilisers and other goods necessary for agriculture, is applicable.

Computer royaltyA 2% computer royalty, to cover expenses incurred by the Customs Administration on computer data processing, is applicable without exception or exemption to all importation and exportation of goods. The royalty applies on the customs taxable value of any imported or exported goods in the Republic of Congo.

Excise taxesExcise duties on all locally made products are due at the rate of 10%, while imported goods are subject to excise duty at the rate of 25%.

Imported non-alcoholic beverages are subject to excise duties following specific customs classification.

Land tax on built propertiesLand tax is payable annually on built properties and is due from the owner. However, properties built for the purpose of accommodation are exempt for ten years, and properties built for business purposes are exempt for five years. The effective rate is determined every year by the local council.

The land tax is levied on the rental value after a deduction of 75% (decline, maintenance, and repair expenses) for properties built for business purposes. The land tax is levied on the cadastral value after a deduction of 75% (decline, maintenance, and repair expenses) for properties built for accommodation purposes.

Land tax on non-built propertiesLand tax is payable annually on non-built properties and is due from the owner. However, properties intended for plantations and breeding are temporarily exempt for a three to ten year range. The effective rate is determined every year by the local council.

The land tax is levied on 50% of the cadastral value, determined every year by the Ministry of Finances. The land tax is arbitrarily assessed by hectares in rural areas according to the nature of the plantations.

Rent taxRent tax is at the rate of 5% on the annual rent, paid quarterly by 20 March, 20 June, 20 September, and 20 December of each year.

For new lease agreements, the rent tax is due at the end of the quarter (as above) following the date of use calculated on the proportion of the rents due until the end of the year.


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The rent tax is imposed on the occupant of the premises (whether the occupant is the owner, a tenant, or a subtenant).

The rent tax is paid by the tenant on behalf of the owner, or by the subtenant on behalf of the tenant. The tenant/subtenant has the legal obligation to pay this tax on behalf of the lessor. Tenant and subtenants make a quarterly deduction in March, June, September, and December from all the rents due to the owner.

A 50% fine, assessed on the amount of the tax, is due for any late payment of the rent tax.

Registration fees and stamp dutiesLease agreement registration fees amount to 3% of the value of the annual rent paid during the tax year, including premises charges if any. ‘Additional centimes’ also apply at a 5% rate of the registration fees. Stamp duties and registration fees should be paid for the total duration of the lease agreement. In the case where the lease agreement is renewed, stamp duties and registration fees should be paid for the renewable period.

Stamp duty ranges from XAF 200 to XAF 20,000 on certain documents.

Examples of documents that are subject to stamp duty include:

• Letters of agreement and other letters that are prepared for use as evidence of act, fact, or condition of civil nature.

• Notarial deeds and their copies.• Visas and flight tickets.

The following fees for the registration of contracts are due within three months from date of signature:

• Purchase orders for public contracts at the rate of 2% for contracts with a value exceeding XAF 10 million.

• Subcontracts in the building construction and public work sector at a fixed fee of XAF 100,000.

• Insurance contracts are registered free of charge and failure to register such contracts will be subject to penalty at the fixed fee of XAF 3 million.

• A fixed fee of XAF 1 million for the registration of every oil services contract with foreign companies and their sub-contractors before the execution of the contract.

• All insurance policies carried out by oil, mining, and telephone companies are subject to registration free of charge; failure to register will result in penalties that total XAF 3 million.

• Registration fee on lease of movables and immovables used for habitation or commercial purposes at the rate of 3%.

• Registration fee on the transfer of rights in a lease at the rate of 10%.

Private contracts, as well as contracts signed abroad or in jurisdictions where registration is not required, do not have to be registered within three months after their signature. They can be registered at any time.

Insurance contracts shall be registered and tax on insurance paid on the 20th day of the month following the insurance subscription. All importers have an obligation to insure imported equipment with local insurance companies.


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Transfer of company shares are subject to a 5% registration fee.

The direct or indirect transfer of assets or social rights of Congolese companies is also subject to a registration duty of 5% calculated on the value of the assets transferred and social rights of these companies. This registration duty is also due in the event of change of control of the company by a change of at least 60% shareholding.

Payroll taxes

Single tax on remunerationA single tax, at the rate of 7.5% on the gross salary of resident employees and non-resident seafarers’ employees, shall be borne by the employer. The tax is 6% on the gross salary of non-resident, non-seafarers’ employees. This tax is payable on the 20th day of the following month after the remunerations were due.

Social contributionsThe employer shall be liable for the following social contributions:

• Family allowance fixed at the rate of 10.035% of gross salary, benefits in kind inclusive, capped at XAF 7.2 million annually.

• Work accident contribution fixed at the rate of 2.25% on gross salary, benefits in kind inclusive, capped at XAF 7.2 million annually.

• Old age, invalidity, and death insurance fixed at the rate of 8% of gross salary, benefits in kind inclusive, capped at XAF 14.4 million annually.

Oil and gasSpecific rules and caps apply for the upstream (production) oil and gas industry.

Tax on pollutionThe tax on pollution is payable by petroleum and mining extracting companies in the production phase, at the rate of 0.2% on the annual turnover.

This tax constitutes a non-deductible expense for the extracting mining/hydrocarbon company in the production phase.

This tax is due in the course of the year and payable quarterly by instalment, proportionally to the production realised during the just-ended quarter and not later than the 20th day of the month following the end of the quarter.

Business taxThe business tax (‘patente’, in French) is a tax collected for local communities.

Legal entities that carry out, in the Republic of Congo, a commercial activity, industrial activity, or any other activity not included in the statutory exemptions are subject to business tax.

The taxable basis of the business tax is:

• For taxpayers under the general regime: The annual turnover, excluding taxes of the previous fiscal year declared or assessed by the administration, for fiscal years ended on 31 December of the year N-1 and to be filed to the tax administration between 10 April and 20 April of the year N.

• For taxpayers that do not realise turnover: All operating expenses in the Republic of Congo.


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Newly registered companies in their first calendar year are exempt from paying business tax.

Foreign companies subject to the deemed profit tax regime are taxed for the entire year from the start of operations in the Republic of Congo on the basis of the estimated contract value of their services.

The business tax is payable on the basis of graduated rates as follows:

Annual turnover (XAF) RateBelow 1,000,000 XAF 10,0001,000,001 to 20,000,000 0.75%20,000,001 to 40,000,000 0.65%40,000,001 to 100,000,000 0.45%100,000,001 to 300,000,000 0.20%300,000,001 to 500,000,000 0.15%500,000,001 to 1,000,000,000 0.14%1,000,000,001 to 3,000,000,000 0.135%3,000,000,001 to 20,000,000,000 0.125%Above 20,000,000,000 0.045%

Business tax is due for the 12-month period from 1 January to 31 December of the taxation year and must be paid in full by the taxpayer, not later than 20 April of each year. Beyond this date, the taxpayer is liable to a penalty of 100% of the amount in excess of the principal amount.

Business tax due by foreign companies subject to the deemed profit tax is payable within 15 days after the beginning of activities. Otherwise, a penalty of 100% is applied.

Business tax paid to the Inland Revenue is not refundable.

Tax on company-owned carsThe tax on company-owned cars applies to the previous fiscal year company-owned cars and is due on 20 March at the latest.

With the exception of estate cars, private cars of companies falling into the category of own use cars for the issuance of vehicle registration documents are subject to tax.

The tax rates vary from XAF 200,000 for engine ratings not over nine horsepower, to XAF 500,000 for the rest.

Cars registered more than ten years ago are exempt from tax.

Branch income

70% of the net profits made by branch offices and foreign companies carrying out business are automatically considered as distributed profits and subject to tax on dividends at the rate of 15%.


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Taxable income is based on financial statements prepared according to standard statements of the OHADA treaty.

Business expenses are generally deductible, unless specifically excluded by law.

Inventory valuationStocks are valued at cost price. However, if the market price is lower than the cost price, the undertaking shall make provisions for depreciation of inventory.

Capital gainsCapital gains are treated as ordinary business income and are taxed at the standard CIT rate of 30%. However, a capital gain realised on the disposal of a fixed asset in the course of trading is excluded from income for a period of three years if the taxpayer reinvests the gain in new fixed assets for the business.

If the business is totally or partially transferred or discontinued, only half of the net capital gain is taxed if the event occurs less than five years after the start-up or purchase of the business and only one-third of the gain is taxed if the event occurs five years or more after the business is started or purchased. However, the total gain is taxed if the business is not carried-on in any form.

Capital gains realised by non-residents on transfers of shares of Congolese companies are subject to taxation at the rate of 20%. This tax shall be paid upon registration of the deed of transfer of the considered shares. Under such sale transactions, the seller, the buyer, and the company whose shares are transferred are jointly and severally liable for the levied tax.

Net capital gains realised as part of a direct or indirect transfer of social assets and/or rights resulting in a change of control of a Congolese company become subject to CIT.

Dividend incomeDividends are treated as ordinary business income and are taxed at the standard CIT rate of 30% for resident corporations.

After three years, profits credited to the non-compulsory reserve are considered to be dividends and are, accordingly, subject to the 15% WHT on dividends.

Amounts claimed as a result of a tax adjustment and added back to revenue, if not invested in the company, are subject to tax on dividend.

Inter-company dividendsDividends received from a Congolese company (DivCo) by a commercial company incorporated in the Republic of Congo (HoldCo) are exempt from CIT and subject to a final 15% WHT if the following conditions are met:

• HoldCo and DivCo are incorporated in the CEMAC.• HoldCo holds 25% of the capital of DivCo.• HoldCo holds the shares for at least two years from the date of purchase.

However, 10% of dividends that are deemed to represent the share of cost and expenses are included in the taxable profits of HoldCo and liable for the CIT.


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If the above conditions are not met, dividends received from a Congolese company by another Congolese company are subject to a 15% WHT, which is an advance payment of the recipient’s CIT.

Interest incomeSubject to any specific provisions, interest paid or deemed to be paid is subject to a WHT at the rate of 20% of the interest paid.

The interest paid is deductible for CIT purposes for the Congolese company to the limit of 20% of the taxable profit before deduction of the expenses in question.

Royalty incomeSubject to any specific provisions, royalties paid or deemed to be paid are subject to a WHT at the rate of 20% of the royalties paid.

The royalties paid are deductible for CIT purposes for the Congolese company to the limit of 20% of the taxable profit before deduction of the expenses in question.

Foreign incomeResident companies are taxed only on income (except for dividends received abroad) derived from their activities carried out in the Republic of Congo.

Deductions

Generally, a deduction is allowed for all expenditures incurred to obtain, collect, and maintain business profits. To be deductible, expenses should be incurred necessarily for the normal purposes of the business and be supported by suitable evidence.

Depreciation and depletionIn general, all types of fixed assets, except land, are depreciable for tax purposes as long as they can be shown to have been acquired for business purposes of the corporation. Depreciation must be calculated on the original purchase price. The straight-line method is used, and the Congolese General Tax Code sets forth maximum rates of depreciation. Goods costing less than XAF 500,000 per item may be written-off at purchase as expenses.

Depreciation recorded when the company is in a loss position may be carried forward without limitation and deducted from the first available taxable profits, provided it was appropriately disclosed in the annual CIT return.

Recoverable and identifiable packaging is regarded as a fixed asset and is recorded in a fixed asset account at the time of purchase. This packaging is regarded as returnable packaging when the supplier intends to act as the sole owner of the packaging.

Unrecoverable packaging is recorded as an expense and is deductible for tax purposes.

Exceptional accelerated depreciation may be authorised in certain circumstances for heavy equipment with a value of more than XAF 40 million. This special accelerated depreciation does not apply to private vehicles owned by the enterprises.

The following list contains maximum rates of depreciation as set forth in the General Tax Code:


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Assets Rates per year (%)Construction 5 to 20Fixed devices and equipment 5 to 25Movable equipment 10 to 100Transport materials 5 to 33.33Furniture, fittings, and other equipment 10 to 33.33Fishing equipment 10 to 20Hotels, bars, and restaurants 10 to 50Plastic equipment (moulding) 10 to 33.33Equipment subject to chemical action 20

Exceptional depreciation methodThe exceptional depreciation method is an accelerated depreciation method.

Companies may elect the accelerated depreciation method for heavy materials and equipment that:

• are purchased new for a value higher than XAF 40 million• have a useful life of at least three years• are used for manufacturing, processing, transport, and handling, and• are bound to an intensive use.

The application for the accelerated depreciation method must be submitted to the head office of taxes within three months of the purchase of the assets to be depreciated. The option is granted upon approval of the Ministry of Finances. If the administration fails to respond to the application for accelerated depreciation within three months, the application is tacitly granted.

Under the exceptional depreciation method, a 40% deduction may be taken in the year of acquisition of the previously mentioned assets, increased by the normal rate calculated on the residual value after application of the accelerated depreciation. These assets are depreciated on a straight-line basis thereafter.

GoodwillThere is no specific provision relating to amortisation of goodwill in the Republic of Congo.

Start-up expensesThere is no specific provision in the Congolese General Tax Code on the deduction of start-up expenses. Start-up expenses that occurred in the first year of incorporation (N) are deductible in the second year of operation (N+1).

According to the OHADA Uniform Act relating to Accounting Systems and Accountancy, start-up expenses can be amortised either in one year (in such a case, they are booked in the deductible expenses during the first fiscal year) or in two years (50% during the first fiscal year and 50% during the second fiscal year).

Interest expensesInterest is deductible, subject to the following conditions:

• General limit: Regardless of the form under which a legal entity is registered, the deduction is allowed with an interest rate limited to the rate of the advances in


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current accounts on states funds of the Bank of the States of Central Africa (BEAC) raised by two points. Currently, the ceiling for the deduction of interest is 4.45%.

• For private limited companies and public limited companies, the deduction is allowed according to the status of control over the management of the enterprise, as follows:• For shareholders who have control over the company de facto or de jure, the

deduction is allowed only to the extent that the sums paid do not exceed, for the shareholders as a whole, half of the paid-up capital and are within the limit sets forth in the ‘general limit’.

• For other shareholders, the ‘general limit’ applies.

Bad debtExpenses and debts not recovered within two years after their account recording shall be added back to the taxable basis of the first fiscal year, subject to general accounting audit even if the fiscal year is statute barred.

Charitable contributionsDonations and gifts made to beneficiaries in the Republic of Congo are deductible from CIT basis at a limit of 0.5‰. The limit is 0.5% as regards donations and subsidies made for the support and development of sport. 50% of amounts of donations and payments upon the occurrence of a natural disaster or accidental disaster are deductible.

Fines and penaltiesPenalties relating to violation of regulations are not deductible.

TaxesTaxes, other than income taxes, are usually deductible. Examples of deductible taxes include customs duties, excise duties, payroll taxes, business tax and accessory taxes, registration taxes, and unrecoverable VAT.

CIT itself is not deductible, nor is the special tax on company-owned cars.

Taxes withheld on remuneration, paid to third parties (third parties taxes), and remitted to the tax office by a Congolese enterprise are not deductible.

Net operating lossesFor tax purposes, losses may be carried forward to offset profits earned in the three succeeding fiscal years. Carryback losses are not permissible.

As mentioned above, depreciation recorded when the company is in a loss position may be carried forward without limitation.

Payments to foreign affiliatesAllowable deductions include sums paid abroad to foreign companies for:

• actual services, notably overhead for the operations made for the benefit of a company based in the Republic of Congo, including costs of studies; technical, financial, and accounting assistance; commissions and fees; and interests, and

• use of patents, licences, trademarks, drawings, manufacturing processes, patterns, and similar rights to the extent the payer proves they correspond to actual operations, and they are neither abnormal nor excessive.


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Subject to the provisions of tax treaties (France, Italy, Mauritius, and CEMAC), the deduction is allowed within a limit of 20% of taxable profits before deduction of the expenses in question. For specific activities, such as, namely, public works business, the limitation of deductibility is capped at 2% of turnover.

In the event of losses, the rate is applied on the results of the last profit period that is not statutory limited. In the absence of profits during the period out of statutory limitation, the sums paid are not allowed as tax deductions.

When the sums are not allowed, as a whole or in part, in the deductible expenses, they are deemed to be paid benefits and are subject to tax on the dividends at the rate of 15%.

Royalties for the transfer or concession of patents, trademarks, drawings, and other similar titles are deductible to the extent the payer proves they are still valid. When these royalties benefit an enterprise contributing in the management or share capital of an enterprise in the Republic of Congo, they are deemed to be paid benefits and are subject to tax on the dividends at the rate of 15%.

Commission or brokerages relating to goods purchased on behalf of enterprises based in the Republic of Congo are allowable tax deductions at up to 5% of the purchase amount made by the central purchasing office, the head office, or the intermediaries. The reductions shall benefit enterprises based in the Republic of Congo. An original supplier’s invoice must be attached to the intermediary’s invoice.

The payer shall prove that:

• the purchases necessitated the interventions of a broker or intermediary• the commissions provided better supply conditions compared with the actual

situations on the market, and• the commissions are not excessive compared with the nature of the services.

Group taxation

There is specific group taxation within the CEMAC area.


• The stocks or shares owned by the parent company represent at least 25% of the capital of the subsidiary company.

• The parent company and subsidiary companies have a registered office in the CEMAC state (Cameroon, Central Africa Republic, Chad, Gabon, Equatorial Guinea, and Republic of Congo).

• The stocks or shares allotted at the time of issue are still registered in the name of the participating company, which undertakes to retain them for at least two consecutive years in registered form.


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Another group taxation regime is also available upon option and under certain conditions, wherein the taxable profits of the group’s companies can be consolidated at the level of the holding company, which will pay the tax due.

Transfer pricingCompanies registered in the Republic of Congo with gross annual turnover net of taxes equal to or exceeding XAF 500 million must keep transfer pricing documentation at the reach of the tax administration so as to justify the transfer pricing policy used in all transactions with legally related entities outside the Republic of Congo.

Targeted companies are required to spontaneously and annually provide to the tax administration a lighter transfer pricing documentation within six months from filing their summary financial statements. Companies that fail to comply with this requirement will be fined at XAF 5 million.

To justify transfer pricing policy, companies shall ensure that the prices of the transactions are in conformity with the five different methods to set up the arm’s-length principle (derived from OECD recommendations).

Thin capitalisationThere are no specific thin capitalisation rules in the Republic of Congo.

Holding companiesA taxation regime applies to incorporated holding companies complying with certain conditions.

Within this regime, capital gains on shares are:

• subject to CIT at standard rate if the shares transferred have been held during less than two years

• subject to a reduced CIT rate (25% of the standard rate, i.e. 7.5%) if the shares transferred have been held during more than two years, and

• tax exempted if (i) the shares transferred have been held for more than two years and (ii) the shares held include at least 60% of shares of CEMAC resident companies.

In addition, these companies benefit from other tax advantages, such as a WHT exemption on certain types of interest as well as a reduced WHT on dividends paid (i.e. 50% of applicable rate).

Controlled foreign companies (CFCs)There is no provision under Congolese tax law related to CFCs.


The current investment regime in the Republic of Congo was set out by Law No. 6-2003 of 18 January 2003, which established the investment charter. The charter’s application, Decree No. 2004-30 of 18 February 2004, established modes of business registration.

• Scope: The following may be registered under the investment charter:


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• Businesses wishing to pursue an activity in the Republic of Congo, except for activities such as brokerage, trade, import, and production of arms, and import or processing of toxic waste and by products.

• Under certain conditions, commercial activities linked to collection, storage, distribution, and export of locally produced products, except alcoholic beverages and tobacco.

• New activities (as opposed to pre-existing activities).• Forestry businesses benefiting from a forestry permit called the forestry

development unit.• New companies coming from the redemption of a registered company.

• Conditions of eligibility for the investment charter: To be eligible, a company must satisfy the following conditions:• Be registered with the Trade and Personal Credit Registry in the Republic of

Congo.• Create permanent employment, to be carried out over a minimum of 280 days per

year.• Maintain company share capital equal to or greater than 20% of investments.• Primarily use local principal materials necessary for the production of the

finished or semi-finished product, when available, with equal conditions concerning price, quality, and time of delivery to outside, in the case of industry.

• Primarily use local business services, when available, with equal conditions concerning quality, price, and time of realisation regarding payments to external businesses, for the case of service businesses.

• Be registered at the Congolese National Welfare Fund.• Open an account at a local bank or any other financial, savings, or credit

establishment.• Primarily use a local workforce, when available, with the same expertise as the

foreign workforce.• Registration procedure: Entitlement to the benefits prescribed by the charter is

subject to obtaining a registration agreement, provided by the National Investment Commission.

• Fiscal and customs benefits set out by the Investment Charter: These benefits vary according to privileged regimes, motivation measures, and in a general manner.

Privileged regimesThe charter sets out three privileged regimes:

• General regime (G).• Special regime (S).• Preferential development zone regime.

General regime (G)The general regime applies to businesses that fulfil the aforementioned general requirements and carry out investments greater than or equal to XAF 100 million.

Special advantages are conferred according to the period of activity of the registered business.

During the set-up period and the first three exploitation tax years, the company receives several benefits, as follows:

• In customs matters, the company benefits from the provisions of the CEMAC customs code relative to asset improvement mechanisms for export activity and from


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the suspension of customs duty in the form of temporary admission or franchise for natural resource research activities.

• In fiscal matters, the company benefits from the 50% reduction of registration fees for business foundation, increases in capital, company mergers, and transfer of company stocks and shares.

For the three first exploitation tax years and until the first year of sale or first service, the following fiscal benefits are added with the aforementioned reduction of registration duties:

• Total exemption from the tax on company earnings.• Companies that are subject to CIT because of their size or activity will be exempt

from CIT.• Businesses that are subject to personal income tax (PIT) because of their size or

activity will be exempt from PIT.• The authorisation to proceed to accelerated depreciation.• The authorisation to carry forward losses for the first three tax years.• The application of zero-rate VAT on exported products.

Special regime (S)The special regime applies to businesses that fulfil the aforementioned general requirements and carry out investments between XAF 30 million and XAF 100 million.

In addition to the advantages of the aforementioned (G) regime, businesses registered under the (S) regime benefit during the set-up period and the first three exploitation tax years from the moderation of registration duties for the incorporation of the business, increases in capital, company mergers, and transfer of company stocks and shares.

This moderation of registration duties is granted exclusively by decree of the Minister in charge of the Economy and Finances upon a decision of the National Investment Commission.

Preferential development zone regimeAll exporting businesses registered under the investment charter are eligible for the preferential development zone system, including free-trade zones.

The institution, organisation, and function of the preferential development zone are fixed by a specific text.

Incentives to set up in remote areasAll new businesses registered under (G) or (S) regimes that are located in a remote area benefit from a reduction of 50% on the tax on company earnings in the fourth and fifth year following the first three tax years for which the business benefited from total exemption from the tax on earnings or PIT.

The business is considered as belonging to a remote area from the moment its production units are set-up and 90% of the production unit workforce is working in the remote location.

The appraisal of a zone’s location results from the exclusive competency of the National Investment Commission.


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Incentives for social and cultural investmentAll new businesses registered under (G) or (S) regimes carrying out investments of a social and cultural character may benefit from a fiscal reduction by ministerial decree of the Minister in charge of Finance and the Economy, upon the decision of the National Investment Commission.

These benefits may not, however, be added to those mentioned above and allocated to remote areas, even if the business concerned is set-up in such a location.

General measuresFor the duration of the privileged regime, and subject to current texts, the company shall enjoy fiscal stability in terms of local and state taxes.

Privileged regimes (G) and (S) are allocated only once and are not renewable. The business may receive fiscal and customs advantages pertaining to the set-up period.

Fiscal advantages concerning the exploitation period are applicable only after the set-up period.

The end of the set-up period is certified by decision of the Minister in charge of Finance and the Economy after the adoption of the verification report by the National Investment Commission.

Respect of the aforementioned general requirements set out by the charter is a prerequisite for benefiting from these motivation measures.

Export incentivesA measure is reserved for businesses that export at least 20% of their production.

The benefits are as follows:

• The provisions of the CEMAC customs code, relating to asset improvement mechanisms.

• Exemption from customs duties and taxes on manufactured products, except computing fees and statistic tax.

• Application of a zero-rate VAT on exported products.

Non-manufactured goods remain subject to the common law export system.

Incentive to reinvest earningsA measure is reserved for businesses that carry out new investments of at least one-third of existing assets.

The benefit conferred consists of a 50% reduction of the tax on company earnings for the three years following the realisation of the investment.

Notwithstanding, this benefit is granted upon the following conditions:

• The business declares to the permanent secretary of the National Investment Commission its investments, planned investment, and the state of existing capital assets.

• The National Investment Commission, on the report of checking teams, verifies if the new investments correspond to one-third of the preceding capital assets.


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• All investments are realised within one year.• Investments generate new employment.• Investments increase capacity of production by at least 10%.• The business has sound ethical concerns.

Institution of preferential tax regime for special economic and industrial zones and health free zonesThe 2014 Finance Act provides for incentives in special economic zones as follows:

• CIT and dividend tax exemptions for six years.• From seven to ten years: CIT and dividend tax rate of 5%.• Beyond ten years: CIT rate of 15% and dividend tax rate of 10%, permanently.• Single tax on remuneration rate of 2.5%, permanently.• Exemption from registration fees for company creation and 50% reduced rates on

transfer deeds.

The 2014 Finance Act provides for incentives in industrial zones as follows:

• CIT and dividend tax exemption for five years.• From six to ten years: CIT rate of 10% and dividend tax rate at 5%.• Beyond ten years: CIT rate of 20% and dividend tax rate of 10%, permanently.• Single tax on remuneration rate of 2.5%, permanently.• Exemption from registration fees for company creation and 50% reduced rates on

transfer deeds.

The 2014 Finance Act provides for incentives in health free zones, as follows:

• CIT total exemption.• Dividend tax rate of 5%.• Single tax on remuneration rate of 2.5%.

It should be noted that eligibility requirements for the preferential regimes described above have not been set yet.

Foreign tax creditThere are no specific rules relating to foreign tax credits in the Republic of Congo.

Withholding taxes

Services, dividends, and attendance fees

ServicesServices rendered by foreign suppliers are subject to a 20% WHT.

In addition, companies that have no tax residence in the Republic of Congo are subject to a 20% WHT if they earn revenues realised in the Republic of Congo or coming from the Republic of Congo, and which come from works or services of any nature performed or used in the Republic of Congo.

WHT does not apply to resident suppliers of a country that has signed an international tax treaty with the Republic of Congo, provided certain conditions are met.


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Payments made by building and public work companies to their sub-contractorsWHT is applicable on payments made by building and public work companies to their sub-contractors, including to engineering offices, at the following rates:

• 3% for sub-contractors taxable on their net profit.• 10% for sub-contractors taxable on a deemed profit (Régime du forfait).

Non-observances, omissions, or underpayments are sanctioned by an XAF 5 million fine and by the non-deductibility of the amounts so paid. Late payments are sanctioned by a 2% penalty per month or portion of month, with a maximum penalty of 100%.

For the considered sub-contractors, said withholding is considered as an instalment of tax.

DividendsDividends distributed by a Congolese company are subject to a 15% WHT unless a different rate applies under an international tax treaty (e.g. France, Italy, Mauritius, CEMAC). The same rate applies for dividends distributed to a resident shareholder.

Under the tax treaties between France and the Republic of Congo and between Italy and the Republic of Congo, the applicable WHT rate is 15%.

Under the tax treaty between Mauritius and the Republic of Congo, the applicable WHT rate is 5%.

There is no specific rate defined in the CEMAC tax treaty.

Attendance feesAttendance fees are subject to a 17% WHT unless a different rate applies under an international tax treaty (e.g. France, CEMAC).

Payments to local independent contractorsPayments to local independent contractors (self-employed contractors, i.e. those not registered with the Congolese Trade Registry) are subject to a WHT at the rate of 5% from such payments, to be remitted to the Public Treasury.

Late remittance of the WHT is subject to a late payment penalty of 50% within the first two months and 100% if the late payment exceeds two months.

The application of the 5% WHT also applies to companies regrouping professionals and increases penalties in case of non-payment (200% penalty, plus 5% interest per month for late payment).

Revenues of legal entities subject to CIT are excluded from the application of the WHT of 5%.

WHT rates summary

Recipient Dividends (%) Interest (%) Royalties (%)Resident corporations 15 0 0Resident individuals 15 0 0Non-resident corporations and individuals (Non-treaty) 15 20 20


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Recipient Dividends (%) Interest (%) Royalties (%)Treaty with:

France 15 0 15Italy 15 0 10Mauritius 5 0 0CEMAC 20 0 0

Tax administration

Taxable periodThe taxable period is the calendar year.

Tax returnsCompanies are required to use the single tax return to file monthly taxes.

The annual CIT return is a specific form (Déclaration Statistique et Fiscale or DSF) that should be prepared in accordance with OHADA accounting principles. The form cannot be completed electronically.

Companies have to use the CEMAC CIT return form, which has been modified to be compliant with Congolese tax law (new form for the determination of the CIT basis and new tax balances for debts and liabilities).

The books must be maintained in French and in Central African CFA francs. This accounting system must follow the OHADA chart of accounts. All entries have to be booked under OHADA standards throughout the year.

The annual CIT return must be filed on 20 May at the latest.

Payment of taxResident companies are required to pay quarterly instalments of tax (20 February, 20 May, 20 August, and 20 November), and these quarterly instalments are generally calculated with reference to the most recent CIT return. Special calculations of instalments apply to new taxpayers.

Based on the self-assessment system, when submitting annual tax returns due by 20 May every year, taxpayers must pay the amount of tax calculated in the annual tax return to the extent this amount exceeds tax instalments paid during the year.

Non-resident companies and individuals shall appoint tax representatives in the Republic of Congo. The Congolese resident shall be considered as tax representative if the non-resident person fails to appoint a tax representative.

Tax audit processTax audits are usually announced by a letter from the tax authorities to the entity concerned of their intention to audit, while stating the period to be audited and the taxes that will be covered by the audit.

The tax authorities may organise meetings with the taxpayer to inform the taxpayer of the preliminary outcomes of the audit, and the taxpayer has the possibility to make counter remarks.


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Thereafter, the tax authorities notify the taxpayer, in writing, of their proposed tax adjustments, and the taxpayer makes counter remarks in writing within 30 days from date of receipt of the tax adjustment notice.

Based on whether the tax authorities find the counter remarks from the taxpayer grounded or not, a letter confirming the tax adjustments or renouncing the proposed tax adjustments shall be sent to the taxpayer, who has the choice to either pay the taxes claimed, negotiate for a reduction of fines, or open up a tax litigation process.

The taxpayer may negotiate the taxes, fines, and the mode of payment of the tax claimed by the tax authorities thereby renouncing one’s right to open up tax litigation.

The taxpayer has the right to request from the Director General of Taxation and Real Estate a transactional mode of payment of fines or payment of tax by friendly settlement. If the taxpayer opts for the transaction, the taxpayer loses the right to object to the outcome of the transaction and is obligated to immediately pay the taxes due (principal and penalties) according to the agreement.

To open up a tax litigation process, the taxpayer will pay a prior deposit of 10% of the sum contested as guarantee (or a banking guarantee as security for litigation) and 5 per thousand of the sum contested for the treatment of the tax claim file and will submit the tax claim file to the Tax Head Office if the amount of the claim exceed XAF 30 million and to the Director of Tax Department if the amount claimed is less than XAF 30 million.

The tax authorities will respond to the tax counter claim of the taxpayer, who, if not satisfied, could open a court claim.

Statute of limitationsGenerally, the statute of limitations period for CIT is four years following the year in which the tax was due. However, this rule does not apply in the case of fraudulent acts reported by the tax administration.

Topics of focus for tax authoritiesThe tax authorities particularly focus on aspects such as:

• Compliance of deductible expenses.• CIT compliance.

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PwC contact

Abdallah ElAdlyPricewaterhouseCoopersPlot No 211Second SectorCity CentreNew Cairo 11835, EgyptTel: +20 2 2759 7887Email: [email protected]


A new value-added tax (VAT) was issued on 8 September 2016, with immediate effect, and so abolished the previously existent general sales tax (GST) law. Further, the executive regulations of the VAT law were issued in the official gazette as of 7 March 2017. See the description of VAT in the Other taxes section for more information.


Resident companies are taxed on worldwide income. Non-resident corporations and partnerships pay tax on income derived from their permanent establishments (PEs) in Egypt.

The corporate income tax (CIT) rate in Egypt is 22.5% on the net taxable profits of a company.

The above rate applies to all types of business activities except for oil exploration companies, whose profits are taxed at 40.55%. In addition, the profits of the Suez Canal Authority, the Egyptian Petroleum Authority, and the Central Bank of Egypt are taxable at a rate of 40%.

Local income taxesThere are no governorate or local taxes on corporate income in Egypt.

Corporate residence

Foreign corporations and partnerships are classified as residents of Egypt if they meet one of the following conditions:

• The entity is established according to the Egyptian law.• The government or a public authority owns more than 50% of the capital of the

entity.• The effective place of management is in Egypt.

The executive regulations of the law indicate that Egypt is considered as the effective place of management if the entity meets any two of the following conditions:

• Daily managerial decisions take place in Egypt.• Members of the board of directors hold their meetings in Egypt.• At least 50% of the board members or managers reside in Egypt.

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• The major shareholders (owners of more than 50% of the shares or voting rights) reside in Egypt.

Permanent establishment (PE)The PE concept is defined in the Income Tax Law as follows:

• Headquarters.• Branch.• Building used as sale outlet.• Office.• Factory.• Workshop.• Places of extraction of natural resources.• Farms.• Building site, construction or assembly point, installations, supervisory activities of

the same.• An agent who has the power to ratify contracts on behalf of a foreign company.• An independent broker or agent who is proved to have dedicated most of one’s time

during the year in the interest of a foreign company.

A foreign company that is deemed to have a PE risk, according to the Egyptian Companies Law, should incorporate a legal entity in Egypt.

There are several legal forms existing under the Egyptian Companies Law from which a foreign company can choose to incorporate, and these are: joint-stock company, limited liability company, branch, or a representative office.

Other taxes

Value-added tax (VAT)A new VAT was issued on 8 September 2016, with immediate effect, and so abolished the previously existent GST law. The new VAT law differs from the abolished GST law as it is applied to a broader range of goods and services. However, the VAT exempts a number of basic goods and services that affect low-income earners (in addition to other exemptions listed within the law). It also introduced the reverse-charge mechanism in Egypt for the first time, whereby transactions involving non-residents providing services/royalties to Egyptian resident entities have become subject to VAT in Egypt.

The standard VAT rate is 13% for the financial year 2016/17 (until 30 June 2017). However, starting from the financial year 2017/18 (i.e. as of 1 July 2017), the VAT rate will increase to be 14%, applicable on all goods and services, except for machinery and equipment used for the purpose of producing a commodity or rendering a service, which are subject to a 5% VAT (although buses and passenger cars are subject to different tax rates).

Registration requirements

• Businesses registered under the abolished GST law will automatically be considered registered for VAT purposes, provided their annual turnover exceeds the new registration threshold of 500,000 Egyptian pounds (EGP).


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• Importers of taxable goods registered under the abolished GST law will automatically be considered registered for VAT purposes, regardless of their turnover.

• Businesses not required to register under the GST law and that are required to register for VAT purposes under the new law must apply to the Egyptian Tax Authority (ETA) for their VAT registration within 30 days from the date of reaching the VAT registration threshold.

• Businesses currently registered under the GST law with a turnover below the new VAT threshold shall be de-registered automatically, unless they specifically request to remain registered within 30 days from the effective date of the new law.

Transitional periodThe new law grants businesses a three month transitional period for reconciling their VAT position, during which the ETA will not levy delay fines for errors or omissions.

Executive regulationsIt’s worth noting that the executive regulations of the Egyptian VAT law were published in the official gazette as of 7 March 2017, providing further clarifications regarding the application of the VAT.

Customs dutiesThe liability for customs duty rests with the person who is importing the goods from abroad.

Customs duty rates on imported goods range from 5% to 40%, with the exception of vehicles for which different rates apply.

Where entities import machines and equipment as capital assets, and to establish the company’s project, the machines and equipment will be charged customs duty at 5%.

Component parts, which are imported to be assembled in Egypt, are assessed customs duty based on the complete product. Then, it is reduced by a percentage ranging from 10% (if the local content of the final product is less than 30%) to a maximum of 90% (if the local content exceeds 60%).

Machines, equipment, and similar capital assets (with the exception of private motor cars) imported on a temporary basis are subject to fees at 20% of the original customs duty for each year or fraction of a year during which they remain in Egypt until they are exported.

It’s worth noting that law no. 7 for the year 2017 was published in the official gazette on 7 March 2017. This law introduced several amendments to the registration requirements/procedures of importers in Egypt.

Excise taxesThere are no excise taxes in Egypt.

Real estate taxesThe Real Estate Tax Law takes into consideration the different variables that can affect the value of a property, such as location, value of similar buildings, and the economic situation of the district in which the property is located. This is to be updated every five years (most recently in August 2014).


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Real estate tax is levied annually on all constructed real estate units, with the exemption of schools, orphanages, charitable organisations, and private residences with a market value of less than EGP 2 million. This tax covers land and buildings, excluding plant and machinery.

Such tax is assessed based on the rental value of the land and building, and these value assessments are set by the committees, after approval of the Minister or whomever the Minister delegates, and published in the Official Journal. Based on the announcement, any taxpayer can appeal the rental value assessment.

The real estate tax rate is 10% of the rental value, and the calculation of the rental value differs for residential units and non-residential units. Specific percentages of deductions are provided by the law to account for all the expenses incurred by the taxpayer, including maintenance costs.

Stamp taxThere are two distinct types of stamp tax, which are imposed on legal documents, deeds, banking transactions, company formation, insurance premiums, and other transactions, as follows:

• The nominal stamp tax is imposed on documents, regardless of their value. The tax rate for items such as contracts is EGP 0.9 for each paper.

• Percentage or proportionate stamp tax is levied based on the value of transactions.

An annual proportional stamp tax at the rate of 0.4%, shared by the bank and the client, is imposed on a bank’s loans. This stamp tax is due on a quarterly basis on the beginning balance of each quarter of credit facilities and loans and advances provided by Egyptian banks or branches of foreign banks during the financial year in addition to the amounts utilised within the quarter.

Loans from other establishments are not subject to this tax.

Stamp tax is imposed on advertisements at the rate of 20%.

Payroll taxesThere is no payroll tax other than the employer’s social insurance contribution.

Social insurance (employer’s contribution)The social insurance contribution of the employer is 26% of the basic salary (up to EGP 1,240) and 24% of the variable salary (up to EGP 2,430).

Branch income

Branches of foreign corporations operating in Egypt receive tax treatment identical to that of corporate entities for the results of their activities in Egypt.

A branch, but not a subsidiary, may deduct a ‘head office charge’ of an amount of up to 10% of its taxable income.

According to law no. 53 of 2014, which imposed withholding tax (WHT) on dividend payments, a PE’s profits will be deemed dividend payments (and thus subject to 5% WHT) if not repatriated within 60 days of the following financial year end.


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Inventory valuationEgyptian generally accepted accounting principles (GAAP) should be applied to inventory valuation, and all methods that are acceptable by Egyptian GAAP can be used. The methods acceptable are almost the same as those acceptable under International Financial Reporting Standards (IFRS).

Capital gainsThe law defines capital gains as the difference between the acquisition cost and the fair market value/selling price of the share. However, for listed shares acquired before 1 July 2014 and sold after that date, the capital gain will be calculated as the difference between either the acquisition price or the closing price on 30 June 2014 (whichever is higher) and the selling price.

Capital gains tax treatment applicable to resident companies

• Shares/securities listed on the Egyptian stock exchange: Capital gains realised from the sale of listed shares will be subject to 10% WHT. However, law no. 96 of 2015 has put the tax on capital gains on listed shares on hold for two years as of 17 May 2015 (i.e. until 17 May 2017). It’s expected that the duration of this capital gains tax waiver on listed shares will be extended; however, to date, there hasn’t been any official declaration confirming that such extension will take place.

• Unlisted shares/securities: Capital gains realised from the sale of unlisted shares will be subject to a capital gains tax at the rate of 22.5%.

• Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad will be subject to a capital gains tax at the rate of 22.5%, with a credit to be given for the foreign tax paid.

Capital gains tax treatment applicable to non-resident companies

• Shares/securities listed on the Egyptian stock exchange: Capital gains realised from the sale of listed shares will be subject to 10% WHT. However, law no. 96 of 2015 has put the tax on capital gains on listed shares on hold for two years as of 17 May 2015 (i.e. until 17 May 2017). It’s expected that the duration of this capital gains tax waiver on listed shares will be extended; however, to date, there hasn’t been any official declaration confirming that such extension will take place.

• Unlisted shares/securities: Capital gains realised from the sale of unlisted shares will be subject to a capital gains tax at the rate of 22.5%.

• Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad will not be taxable in Egypt.

Capital lossesA capital loss can be offset against a capital gain arising during the same tax year, provided that they both arise from the sale of shares (i.e. gain and loss of listed shares are in a separate pool from the gain and loss of unlisted shares, so the loss from the sale of listed shares can only be offset against the gain from the listed shares and cannot be offset from the gain of unlisted ones). Excess capital losses that are not utilised during a tax year can be carried forward for a period of three years and should be offset against capital gains from the sale of shares.


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Dividend incomeDividend income treatment applicable to resident companiesA 10% WHT will be imposed on dividends paid by Egyptian companies to resident corporate shareholders. The 10% WHT can be reduced to 5% if both of the following conditions are met:

• The shareholder holds more than 25% of the share capital or the voting rights of the subsidiary company.

• The shares are held for at least two years.

Dividends received by resident companies from other resident companies should not be added to taxable income, provided that the related/associated costs are not deductible from the recipient companies’ taxable profit.

Dividend income treatment applicable to non-resident companiesA 10% WHT will be imposed on dividends paid by Egyptian companies to non-resident corporate shareholders. The 10% WHT can be reduced to 5% if both of the following conditions are met:

• The shareholder holds more than 25% of the share capital or the voting rights of the subsidiary company.

• The shares are held for at least two years.

Participation exemption90% of the dividends distributed by a non-resident corporate shareholder to a resident one will be exempt from tax (i.e. only 10% of the amount of the dividends will be subject to tax). Such exemption can be benefited from if both of the following conditions are met:

• The shareholder holds at least 25% of the share capital or the voting rights of the subsidiary company.

• The company holds or commits to hold the shares of the subsidiary for at least two years.

Permanent establishments (PEs)A PE’s profits can be deemed dividend payments, and thus subject to the above treatment, if they were not repatriated to the parent company within 60 days of the PE’s financial year end.

Stock dividendsStock dividends are not subject to tax in Egypt.

Interest incomeInterest expenses are deducted from interest income when calculating the interest income to be included in taxable income, provided certain conditions are met.

Generally, interest income is not taxed separately, it is considered as part of the company’s income and taxed accordingly (i.e. at the 22.5% CIT rate).

Rent/royalty incomeRent/royalty income are not taxed separately; they are considered as part of the company’s income and taxed accordingly (i.e. at the 22.5% CIT rate).


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Foreign incomeIncome from any source, domestic or foreign, received by a corporation within Egypt is subject to CIT. The scope of tax covers the activities carried out inside and outside Egypt, which are administered or managed within Egypt.

There is no provision for deferring income earned abroad.

Deductions

In order for expenses to be acceptable for tax deduction, such expenses must be:

• actual and supported by documents• business related, and• necessary for performing the company’s activity.

Depreciation and amortisationThe tax law set the depreciation and amortisation rates for tax purposes to the following:

• 5% of the cost of purchasing, establishing, developing, and renovating buildings and establishments is deductible based on the straight-line method.

• 10% of the cost of purchasing, developing, and improving intangible assets is deductible based on the straight-line method.

• Computers, information systems, software, and data storage sets are depreciated at a 50% rate on a declining-balance method.

• All others assets are depreciated at a rate of 25% of the depreciation basis for each fiscal year, on a declining-balance method.

Accelerated depreciationA company may have the option to deduct 30% accelerated depreciation from the value of the machines and equipment used in industries during the first fiscal year of their employment. This should be done by submitting a request to the tax authority prior to deducting the 30% accelerated depreciation.

GoodwillAccording to Article 25 of the Egyptian Income Tax Law, goodwill is amortised at the rate of 10% using the straight-line method.

Start-up expensesStart-up expenses are tax deductible, and the whole amount can be amortised for the first year.

Interest expensesInterest expenses are deductible for tax purposes after offsetting any tax-exempt interest income.

Interest expense deductions are only allowed if the following conditions are fully met:

• The interest rate does not exceed twice the discount rate as determined by the Central Bank of Egypt at the beginning of the calendar year in which the tax year ends.


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• The interest expense is in return for loans complying with the local thin capitalisation rule: 4:1 debt-to-equity ratio.

• The Egyptian transfer pricing rules (i.e. arm’s-length principle) are being followed (see Transfer pricing in the Group taxation section for more information). In case of a tax audit, if the interest rate isn’t proven to be at arm’s length, the tax authority has the right to adjust this price to arrive at the ‘arm’s-length price’ and re-calculate the taxes due accordingly.

• The loan is business related.

Bad debtAccording to Article 28 of the Egyptian Income Tax Law, deduction of bad debts shall be allowed, subject to submitting a report from the external auditor indicating the fulfilment of the following conditions:

• The company is maintaining regular books and records.• The debt is related to the company activities.• That debt value was previously included within the company accounts and records.• The company has taken serious procedures for settlement of such debt and has been

unable to collect it after 18 months from its due date.

Charitable contributionsDonations to the government are tax deductible. Donations to Egyptian charities are also deductible, but only up to 10% of taxable income.

Fines and penaltiesFinancial fines and penalties paid by the taxpayer because they or one of their subordinates has committed a deliberate felony or misdemeanour are not deductible.

TaxesIncome tax payable according to the Income Tax Law is not deductible.

Other significant itemsThe following other items are not deductible:

• Reserves and appropriations of all different types.• Profit shares, distributed dividends, and the attendance fees paid to shareholders for

attending the general assembly’s meetings.• Compensation and allowances obtained by the chairmen and board members.• Workers profit share to be distributed according to the law.

Net operating lossesA company may carry losses forward for a period not to exceed five years. Nevertheless, if a change occurs in the ownership of its capital exceeding 50% of the shares, stocks, or the voting rights, if the company is either a joint-stock company or a company limited by shares whose shares are not listed on the Egyptian Stock of Exchange, and if the company changes its activity, the company cannot carry the losses forward.

In general, companies cannot carry losses back, except for contracting companies (i.e. in case of long-term projects), which are allowed a loss carryback for an unlimited period of time (to the extent of the duration of the contract).


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Payments to head officeA branch may deduct head-office charges of up to 10% of its taxable income. Moreover, the branch or subsidiary should withhold taxes before the payment of interest, royalties, and service fees to non-resident foreign corporations or affiliates.

Group taxation

The Egyptian tax law treats every company in a group of companies as a separate legal entity. Thus, affiliated companies or subsidiaries cannot shift the profits/losses within the group.

Transfer pricingTransfer pricing rules follow the arm’s-length principle, specifying that any transaction between related parties should be at arm’s length (i.e. market value).

The law does not specify penalties with regard to transfer pricing. However, the law states that the ETA may adjust the pricing of transactions between related parties if the transaction involves elements that would not be included in transactions between non-related parties, and whose purpose is to shift the tax burden to tax exempt or non-taxable entities. Where this is the case, the tax authorities may determine the taxable profit on the basis of the neutral price. The acceptable methods for determining such neutral price, according to the rule of the law, are as follows:

• Comparative free price (same as Comparable Uncontrolled Price method [CUP]).• Total cost with an added margin of profit (same as Cost Plus method).• Resale price.

On 29 November 2010, the ETA launched the Transfer Pricing Guidelines (‘TP Guidelines’). The TP Guidelines are being issued as a series of parts, the first part of which was issued in final version to the public and provides guidance on the arm’s-length principle, how to establish comparability, choosing the most appropriate transfer pricing method(s), and documentation requirements. The coming parts should cover more complex transfer pricing topics, specifically transactions involving intellectual property (IP), intra-group services, cost contribution arrangements, and advanced pricing agreements (APAs).

Taxpayers are required to prepare contemporaneous documentation studies to support the arm’s-length nature of their controlled transactions. The ETA does not require the submission of transfer pricing documentation studies with the tax return; rather, they are required to be available upon request in a tax audit. Studies are acceptable in English, but a translation may be requested from the taxpayer.

The ETA explained that the TP Guidelines will be utilised as a practical guide to assist taxpayers and tax inspectors in understanding how to implement and examine transfer pricing transactions. The Egyptian TP Guidelines were compared to the Organisation for Economic Co-operation and Development (OECD) by an OECD representative and were found to be similar.

Thin capitalisationThe Egyptian thin capitalisation rule provided by the Egyptian Income Tax Law dictates that the debt-to-equity ratio is 4:1. Accordingly, the Law disallows the deductibility of debit interests of Egyptian companies on loans and advances if such loans and advances


Egypt

are in excess of fourfold the equity average (which is calculated according to the financial statements prepared pursuant to the Egyptian accounting standards).

Debt includes loans and advances, including bonds and any form of financing by debts, even if through securities with fixed/variable interest.

With respect to the debit interest, it includes all amounts paid by a taxpayer in return for the loans, advances of any kind obtained, bonds, and bills.

For determining the equity, the following items represent the basis for the calculation: the paid up capital in addition to all reserves and retained earnings reduced by retained losses. In addition, revaluation gains should be excluded from the equation, in case they were not subject to tax. In case of retained or carryforward losses, they must be used to reduce retained earnings and reserves solely; the percentage is calculated on the basis of total loans and advances in proportion to the remaining equity amount, after deducting the retained losses with a minimum of the paid up capital (in other words, they should be deducted from the retained earnings and reserves, where in case of a net loss balance, debt should be compared to the paid up capital).

For the purpose of calculating the debt to equity ratio, average debt and equity balances are used.

It’s worth noting that the following types of loans should be excluded from the above calculation:

• Interest-free loans.• Loans with non-taxable interests.• Loans with a grace period for settling the interest payment solely until the end of the

loan period.

Controlled foreign companies (CFCs)Egypt currently does not define specific rules for CFCs; however, in an effort to exert similar CFC provisions, investments are evaluated according to the Egyptian Accounting Standards and the equity rights method where the profits generating from the disposal of such investments are determined on the basis of the difference between the cost of investment acquisition and its sale value.


Egypt offers no specific tax incentives unless a company is a free zone entity, which is considered tax exempt.

Foreign tax creditThe foreign tax paid by a resident company on its profits earned abroad is deductible from the tax payable in Egypt; however, losses incurred abroad are not deductible.


Egypt

Withholding taxes

An Egyptian tax resident corporation paying invoices must withhold 0.5% to 5% of payments, depending on the services and commodities, to local taxpayers and remit them quarterly to the tax department.

A 10% WHT is imposed on dividends paid by Egyptian companies to resident corporate shareholders. See Dividend income in the Income determination section for further information.

Payments of dividends, interest, royalties, and services by a domestic corporation to foreign or non-resident bodies are subject to WHT as follows.

Dividends to non-residentsA 10% WHT is imposed on dividends paid by Egyptian companies to non-resident corporate shareholders (see Dividend income in the Income determination section for further information). However, an applicable double tax treaty (DTT) between Egypt and the foreign country may result in the reduction/elimination of such tax rate.

Interest to non-residentsInterest on loans with more than a three-year term entered into by private sector companies is exempt from WHT, while loans of less than three years are subject to 20% WHT on interest. However, an applicable DTT between Egypt and the foreign country may result in the reduction of such tax rate. Please see below for the ministerial decree affecting the treatment of interest and royalty payments.

Royalties to non-residentsRoyalty payments are subject to the 20% WHT. However, an applicable DTT signed between Egypt and the foreign country may result in a reduction in this rate. Please see below for the ministerial decree affecting the treatment of interest and royalty payments.

Service payments to non-residentsService payments are subject to the 20% WHT. However, an applicable DTT signed between Egypt and the foreign country may result in the exemption of these payments if the services are performed abroad and not through PE in Egypt.

For payments withheld on behalf of non-resident entities, tax shall be remitted to the tax authority the day following the withholding of the amount.

Tax treatiesEgypt has concluded DTTs with about 50 countries, which could change the tax treatment of transactions carried out between Egyptian entities and residents of a treaty country.

Recipient Dividends (%) Interest (%) Royalties (%)Non-treaty 5/10 (8) 20 20Treaty:Albania 10 10 10Algeria 10 5 10Austria 15 15 -Bahrain 0 - -Belarus 15 10 15Belgium 15/20 (1) 15 15


Egypt

Recipient Dividends (%) Interest (%) Royalties (%)Bulgaria 10 15 15Canada 15/20 (1) 15 15China 8 10 8Cyprus 15 15 10Czech Republic 5/15 (2) 15 15Denmark 15/20 (2) 15 20Finland 20 15 20France 0 15 15% franchise

15% for other royaltiesGeorgia 10 10 10Germany 15/20 (1) 15 15Greece 10 10 10Hungary 15/20 (1) 15 15India (3) 20 20Indonesia 15 15 15Iraq (3) 20 16Ireland 5/10 (2) 10 10Italy 20 20 15Japan 20 20 15Jordan 15 15 20Korea 10/15 (2) 15 15Kuwait 10 10 10Lebanon 10 10 5Libya (3) - -Macedonia 10 10 10Malaysia 0 15 15Malta 10 (1) 10 12Mauritius 5/10 (2) 10 12Morocco 10/12.5 (2) 20 10Netherlands 0/15 (4) 12 12Norway 15 20 15Oman 12.5 12.5 15Pakistan 15/30 (5) 15 15Palestinian Territories 15 15 15Poland 12 12 12Romania 10 15 15Russia 10 10 15Serbia & Montenegro 5/15 (5) 15 15Singapore 15 15 15South Africa 15 12 15Spain 9/12 (2) 10 12Sudan 0/15 20 10Sweden 5/20 (2) 15 14Switzerland 5/15 (2) 15 12.5Syria 15 15 20Tunisia 10 10 15Turkey 5/15 (2) 10 10Ukraine 12 12 12United Arab Emirates 0 (6) 10 10United Kingdom 20 15 15


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Recipient Dividends (%) Interest (%) Royalties (%)United States 5/15 (4, 7) 15 15Yemen N/A (6) 10 10

Notes

1. Dividends paid out by a company resident of Egypt to an individual of the other contracting state shall not be taxed more than the maximum amount mentioned. 15% in all other cases.

2. Reduced rate of the gross amount of dividends is applied if the beneficial owner is a company that holds at least 25% of the company’s capital. Higher rate applies in all other cases.

3. In the absence of specific provisions, dividends may be taxed under the local law at 10%, which may be reduced to 5% under certain conditions.

4. Lower rate applies if the foreign company holds more than 25% of the capital in the company.5. Lower rate applies if the beneficial owner is a company.6. Taxed in both the resident and source state.7. The reduction in the rate does not apply if the recipient is engaged in a trade or business in the United

States through a PE that is in the United States. However, if the income is not effectively connected with a trade or business in the United States by the recipient, the recipient will be considered as not having a PE in the United States to apply the reduced treaty rate to that item of income.

8. See Dividend income in the Income determination section for descriptions of instances when the 5% rate applies.

Procedures for applying the WHT on payments to non-residentsMinisterial decree no. 771 for 2009 dictates that the reduced rate of WHT on interest or royalties provided by an applicable DTT should not be automatically applied. The rate of 20% (Egyptian tax rate) should be imposed upon deduction. However, under certain conditions, the foreign recipient of payments will be able to get a refund for the amount resulting from the variance between the normal rate of 20% and the reduced treaty rate.

Certain documents should be submitted to the tax authority along with the refund claim.

A special unit responsible for interest and royalty WHT refunds is tasked with reviewing each refund case and with issuing refund letters (subject to compliance with the requirements of the 2009 ministerial decree). A refund letter is required to be able to get a refund of excess WHT from the tax office to which the taxes were actually paid.

Please note that free zone entities are obligated to withhold tax when dealing with non-resident entities and shall remit the tax to the tax authority.

In 2015, amendments were made to certain articles of the executive regulations of the Egyptian Income Tax Law no. 91 of 2005, among which was amending the article that forms the basis of the ministerial decree no. 771, whereby some provisions of this article were abolished.

However, practically, it is still a controversial issue whether (i) the decree is abolished and so the reduced rate of the DTT should apply automatically or (ii) the decree stands and the refund mechanism should apply. Consequently, we are of the opinion that taxpayers must have the necessary documents available at all times, as the ETA, upon tax audit, may seek to ensure that the recipient of the income is the beneficial owner of it and is a tax resident of the relevant state, to approve benefitting from a relevant DTT’s privileges.


Egypt

Tax administration

Taxable periodThe tax year is the financial year of the taxpayer.

Tax returnsThe taxpayer is required to assess taxes due for every financial year and settle them with the tax return.

The CIT return is due within four months from the end of the financial year; consequently, if a company’s financial year ends 31 December, then the tax return has to be filed before the end of April of the following year.

For the filing requirements of the WHT on dividends, the entity executing the transaction should withhold 1% of the dividends distributed by an Egyptian entity (in case the dividends are distributed to an Egyptian tax resident individual), and remit it to the tax authority at a maximum date of the fifth day of the month following the month at which the distribution took place. This amount is considered part of the dividends tax. Later, the shareholder should remit the remaining amount of the tax to the tax authority.

Payment of taxAdvance payments are deducted from taxes assessed per the tax return, and the balance is payable in a lump sum at the date of submitting the tax return.

Note that tax on capital gains realised on shares listed on the Egyptian stock exchange should be remitted to the tax authority by the legal entity undertaking the sale transaction. However, in case the shares are unlisted in the Egyptian stock exchange, the tax on capital gains should be withheld by any party executing the transaction.

The advance payment (i.e. WHT) is submitted on a quarterly basis.

PenaltiesIf the taxpayer included a tax amount in the tax return that is less than the finally assessed tax, the taxpayer is liable to a fine based on the non-included percentage, as follows:

• 5% of the tax payable on the non-included amount if such amount is equivalent to 10% up to 20% of the final tax due.

• 15% of the tax payable on the non-included amount if such amount is more than 20% up to 50% of the final tax due.

• 40% of the tax payable on the non-included amount if such amount is more than 50% of the final tax due.

Tax audit processThe audit cycle proceeds as follows:

InspectionThe tax authority inspects the company based on its documents and records in order to assess the total tax due on the company and determines the difference in tax due as per the company declaration and the tax authority assessment. The authority issues an assessment including the total tax due on the company. If the company objects to the inspection result, the dispute is transferred to the Internal Committee.


Egypt

Internal CommitteeThe dispute is transferred to the Internal Committee to discuss the dispute points that arose from the inspection further to issue a modified assessment based on its opinion. If the company objects to the Internal Committee result, the dispute is transferred to the Appeal Committee to review the dispute points arising from the Internal Committee.

Appeal CommitteeThe Appeal Committee’s decision is final and binding on the company and the tax department unless a case is appealed by either of them at the court within 30 days of receiving the decision. Based on the fact that the total taxes due on the assessment as per the Appeal Committee are considered final if they are not paid within the appropriate period, there will be penalties for the late payment.

CourtIf the decision of the Appeal Committee is not satisfactory for either party, the case will be transferred to the court system, which is considered the final stage of the disputes. Normally, the court will appoint an expert witness to investigate the case and prepare a report. The court process usually takes a long period of time.

Statute of limitationsThe statute of limitations is five years according to the Egyptian Income Tax Law and is extended to be six years in case of tax evasion.

Topics of focus for tax authoritiesThe most important topic for tax authorities is transfer pricing.

General anti-avoidance rule (GAAR)A GAAR is applicable to arrangements entered into on or after 1 July 2014. The primary objective of the GAAR is to deter taxpayers from entering into abusive arrangements for the purpose of obtaining an abusive tax advantage. The law stipulates that the tax effect of any transaction whose main purpose, or one of the main purposes thereof, is tax avoidance shall not be reckoned with. In this case, the crucial factor when making tax assessments is the real economic substance of the transaction in question. The burden of proving that the main purpose, or one of the main purposes, of conducting a transaction has been to avoid taxation lies with the tax authority.

Equatorial Guinea 135www.pwc.com/taxsummaries

Equatorial Guinea

PwC contact

Nanda NzambiMain Road Malabo 2 EGICO Tower 3rd and 4th Floor PO Box 431 Equatorial GuineaTel: +240 333 09 14 34Email: [email protected]


There have been no significant corporate tax developments in Equatorial Guinea during the past year.


The corporate income tax (CIT) must be paid by any resident entity.

Taxable profit is determined by deducting from gross income all expenses tied to the performance of taxable activities in Equatorial Guinea. In principle, all expenses are deductible, but the Tax Code provides deductibility rules for some of them.

Resident companies are subject to CIT on their worldwide income (even if, in practice, it is tolerated for CIT only to be applied to income related to activities carried out in Equatorial Guinea). Non-resident entities are subject to a 10% withholding tax (WHT) on gross income derived from sources in Equatorial Guinea.

The CIT rate is 35% on taxable profits.

Minimum income tax (MIT)The MIT rate is 3% of the turnover of the company for the previous year. This amount cannot be lower than 800,000 Central African CFA francs (XAF) (even if the company does not generate any revenue).

MIT can be totally or partially deducted from the CIT liability to be paid.

Local income taxesThere are no local income taxes in Equatorial Guinea.

Corporate residence

A legal entity present in Equatorial Guinea more than three months within a calendar year, or more than six months within two consecutive calendar years, and performing an economic activity or providing paid services in the country is considered as a resident for taxation purposes.

The notion of residence applies equally to any kind of activity (even if there is some specificity in the oil and gas sector).

PwC Worldwide Tax SummariesEquatorial Guinea136

Equatorial Guinea

Permanent establishment (PE)The notion of ‘permanent establishment’ is not defined in Equatorial Guinea’s Tax Code. Authorities mainly refer to the notion of residence as defined above.

Other taxes

Value-added tax (VAT)VAT is an indirect tax on consumption based on turnover.

All operations performed in Equatorial Guinea are subject to VAT unless they are included in the list of exemptions provided by the Equatorial Guinea Tax Code or a specific tax regime.

VAT is generally chargeable on the following:

• Goods sold or assigned for valuable consideration.• Services provided.• Self-consumed goods and services.• Imports.• Other operations carried on by individuals or legal entities in their sphere of

business, professional, and individual activities, including extraction activities.

The standard VAT rate is 15%.

A rate of 0% is applicable to a specific list of products and equipment provided in the Tax Code (e.g. certain medical products, some equipment for construction).

A reduced rate of 6% is applicable to a limited list of basic consumables and books.

Customs dutiesThe customs duties are based on the categories of goods as follows:

• Category I: Primary necessity goods: 5%.• Category II: Raw material and materials: 10%.• Category III: Intermediary goods and miscellaneous: 20%.• Category IV: Current consumption goods: 30%.

Excise taxesExcise taxes are applicable on specific goods, such as alcoholic drinks and tobacco. The rates are from 20% to 50% plus a special Economic and Monetary Community of Central Africa (CEMAC) contribution from 0% to 35%.

Real property taxA 1% urban property tax applies annually to 40% of the value of the land and the buildings on such land. Urban property is defined by the Tax Code as “any land with or without buildings and the buildings built thereon, whenever located in urban areas”.

Transfer taxFor the transfer of goods between residents and non-residents, and between non-residents, there is a 3% tax on the value of the goods.


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Real estate transfers between residents are taxed at the rate of 5% on the value of the real estate. The rate increases to 25% on real estate transfers between residents and non-residents, and between non-residents.

Stamp dutiesStamp duties are payable on a variety of instruments and transactions and vary depending on the concerned legal act.

Payroll taxesThe personal income tax (PIT) liability is withheld from the employee’s salary and declared and paid by the employer.

The tax tables applicable to individuals are provided in the Taxes on personal income section of Equatorial Guinea’s Individual tax summary at www.pwc.com/taxsummaries.

Social security contributionsEmployers contribute 1% of gross salary to the Work Protection Fund (Fondo de Protección al Trabajo in Spanish) and 21.5% to the National Institute of Social Security (INSESO for its Spanish acronym) on a monthly basis.

Employees contribute 0.5% of net salary to the Work Protection Fund and 4.5% to the INSESO on a monthly basis.

Both of these contributions are declared and paid by the company.

Branch income

Branch income is subject to CIT. We understand there is no branch remittance tax, even if tax authorities have tried to challenge this position in the past.


Inventory valuationInventory is evaluated at cost price for tax purposes. The tax method generally matches the book method.

Capital gainsCapital gains are, in principle, subject to CIT.

Some exemptions and specific tax regimes can apply, as follows:

• Capital gains that come from the assignment, in the ongoing operation, of the components of the fixed assets will not be included in the taxable profit of the fiscal year in the course of which they have been obtained if the taxpayer puts them in a special account named ‘capital gains to be reused’ and is committed to reinvesting in new fixed assets in the company before the expiration of a period of time of three years, starting from the close of this fiscal year, an amount equal to the amount of these capital gains plus the cost of the assigned components.

• Capital gains different from those obtained on goods, resulting from free assignment of stock, corporate portions, or liabilities, as a consequence of the merger of corporations, limited partnerships by shares, or limited companies, will be exempt




Equatorial Guinea

from the tax regarding the profits made by those corporations, on condition that the take-over company or the new company has its corporate headquarters in Equatorial Guinea.

Dividend incomeAll dividends received by a resident company are subject to CIT.

A personal income WHT of 25% is applicable on dividends paid to individuals or companies not having their usual domicile or headquarters in Equatorial Guinea. This tax is a final tax for those taxpayers.

The net products of the shares owned and earned by the parent company from its subsidiary can be deducted from the total net profits of the parent company after offsetting from this amount 25% (expenses and charges lump sum amount) if the:

• shareholder holds at least 25% of shares of the subsidiary and• shareholder guarantees the shares have always been registered in the name of

the participating company and commits it will hold these shares for at least two consecutive years.

This proportional part is established at 10% of the amount of these products and represents the management expenses already deducted from overhead costs.

Interest incomeInterest earned by companies established in Equatorial Guinea is subject to CIT (35% rate).

Interest earned by companies not having their usual domicile or headquarters in Equatorial Guinea is considered as dividend income and subject to WHT at a 25% rate.

Royalty incomeRoyalties over gross production for the oil and gas industry are paid based on the respective Production Sharing Contracts.

Foreign incomeResident companies are subject to CIT on their worldwide income.

There is no tax deferral in Equatorial Guinea.

Deductions

DepreciationA straight-line method of computation of depreciation should be applied to fixed assets according to the normal useful lives of the assets involved, as provided by the Tax Code.

GoodwillGoodwill is, in principle, not deductible.

Start-up expensesStart-up expenses can be amortised (regarding tangible assets) or fully deductible (regarding registration costs and fees).


Equatorial Guinea

Interest expensesInterest expenses are deductible if they do not exceed the limit for loans set up by the Central Bank.

Bad debtBad debts are deductible, given they are supported.

Charitable contributionsCharitable contributions are deductible, given they are for philanthropic, sport, educative, scientific, social, or family purposes and do not exceed 0.5% of the turnover for the fiscal year of the company.

Fines and penaltiesFines and penalties are not deductible.

TaxesOnly professional taxes are deductible.

Net operating lossesNet operating losses can be carried forward for three years (five years for companies belonging to the oil and gas sector). Losses cannot be carried back. Losses of one entity cannot be transferred to another entity in a reorganisation.

In theory, when the results of a company, no matter the kind of company, are negative during a maximum period of three consecutive years, this company will immediately be removed from the register by the Tax Administration for the practice of the activity for which it was registered, except when the company is newly created.

Payments to foreign affiliatesThe deductibility of the technical assistance made by the parent company to its subsidiary is limited to 50% of the intermediary tax result (accounting result plus potential fiscal reintegration).

In case of a deficit, the relevant basis for the evaluation of the foreign technical assistance amount to be reintegrated will be the intermediary result of the last beneficiary fiscal year.

Group taxation

Equatorial Guinea law does not provide specific provisions for taxation of groups.

Transfer pricingThere are no specific rules regarding transfer pricing, even if there are indirect references in the Tax Code.

Indeed, according to the Tax Code, in order to determine the CIT liability of entities under dependence and control of companies located outside of Equatorial Guinea, any transfer of profits shall be recorded in the accounting’s profits and losses.

Furthermore, CEMAC’s Directive related to CIT states that head office costs are fully deductible if they correspond to real operations, and they are neither unusual nor exaggerated.


Equatorial Guinea

However, there is no regulation in force providing a definition of ‘transfer of profits’ and neither any criterion that would allow the determination of the ‘exaggerated’ nature of costs.

Thin capitalisationAccording to the Tax Code:

“Interest paid to the partners for amounts made available to the company, in addition to their capital contributions, no matter the form of the company, will be admitted (for deduction) within the limits established for the advances of the Central Bank.

In incorporated or limited companies, the deduction of interest will not be allowed for partners or shareholders that have the right to hold, or actually hold, the company management except to the extent that the amounts deposited do not exceed the combination of the contributions of these partners or shareholders.”

Controlled foreign companies (CFCs)According to the Tax Code:

“Regarding legal entities located outside of Equatorial Guinea and which have subsidiary or interdependence ties with other legal entities or companies located in Equatorial Guinea, the place of their taxation will be the same as that of the legal entities or companies with which it maintains those ties (i.e. Equatorial Guinea). These latter are jointly and severally liable for the payment of the tax owed by the legal entities located outside of Equatorial Guinea.”


Some tax and customs exemptions can be granted by the government for some specific economic sectors (e.g. oil and gas sector, public work sector). These exemptions shall be negotiated in the contract signed between the company and the administration (e.g. Production Sharing Contract, Public Work Contract).

Foreign tax creditThere is no foreign tax credit in Equatorial Guinea.

Withholding taxes

WHT in the general regime (i.e. any sector other than the oil and gas sector)There is a 10% tax withheld on the gross incomes obtained in Equatorial Guinea by non-residents.

There is a 25% WHT on royalties for non-CEMAC residents.

Dividends and interests paid to non-residents are subject to 25% WHT.

WHT on the oil and gas sectorIn Equatorial Guinea:

• a 6.25% WHT must be applied to payments made to a resident entity within the oil and gas sector and


Equatorial Guinea

• a 10% WHT must be applied to payments made to a non-resident entity within the oil and gas sector.

In practice, the tax authorities consider this tax only applies to sales of services.

The tax basis is composed of the gross amount paid to the provider.

Tax administration

Taxable periodThe taxable period is from 1 January to 31 December for CIT purposes.

Tax returnsCIT returns must be filed within the first four months of the year following the taxable fiscal year.

Payment of taxPayment of CIT must be made within 15 days from the day following the date of receipt of the tax liquidation issued by the Ministry of Finance and Budget.

The MIT of 3% of the previous year’s turnover is payable before 31 March.

PenaltiesPenalties of XAF 200,000 per month late, up to 75% of the tax owed, apply for late filing of CIT returns.

A penalty of 50% to 100% of the undeclared amount applies in case of shortfall in the return and in case of arbitrary settlement, 50% of the total amount if the good faith of the taxpayer is established or assumed and 100% wherever the taxpayer does not prove good faith.

Tax audit processThere is no specific provision related to the tax audit cycle in Equatorial Guinea.

Statute of limitationsThe statute of limitations is five years from the date the tax is due.

Topics of focus for tax authoritiesTopics systematically assessed by tax authorities in the framework of audits are:

• WHT of the oil and gas sector.• PIT and social contributions.

In the framework of recent audits, the tax authorities are more and more interested in assessing transfer pricing operations.

Gabon 142www.pwc.com/taxsummaries

Gabon

PwC contact

Christophe RelongouePricewaterhouseCoopers Tax and Legal366 Rue Alfred-MarcheLibrevilleGabonese RepublicTel: +241 01 74 59 11Email: [email protected]


Further to the promulgation of the Financial Act for 2017, the following new tax measures have been introduced:

• The institution of a contribution for vocational training due by employers corresponding to 0.5% of the remunerations paid to employees of Gabonese companies.

• The institution of a Special Solidarity Contribution (SSC) corresponding to 1% of the price of goods and services, out of taxes, invoiced under similar conditions as value-added tax (VAT).

• The implementation of the Organisation for Economic Co-operation and Development (OECD) transfer pricing regulation with respect to the Master and Local files, as well as the Country-by-Country (CbC) report, and the introduction of penalties for noncompliance with requirements relating to the transfer pricing documentation.

• The institution of a withholding of 5% on the rents paid to individuals as part of their personal income tax (PIT), as owners.


Subject to the provisions of double tax treaties (DTTs), profits subject to corporate income tax (CIT) in Gabon are those obtained by companies exploited in Gabon or those relating to operations carried out in this country.

As the Uniform Act of the Organisation for the Harmonisation of Business Law in Africa (OHADA) relating to the law of companies and economic interest groups has introduced the simplified stock company (SAS) in the OHADA area, the General Tax Code has enlarged the application of the CIT to include the SAS.

The CIT rate is fixed at 30%.

The CIT rate is 35% for companies operating in the oil and mining sectors and 25% for the following entities:

• Companies owning intellectual property (IP) shares.• The Gabonese Development Bank.• Authorised companies of property promotions.• Public companies.• Non-profit partnerships and collectives.• Authorised companies of the tourism sector.

PwC Worldwide Tax SummariesGabon143

Gabon

CIT is assessed on profits minus deductible expenses and charges. Profits are composed of all operations carried out in Gabon by companies during the period of taxation, including, notably, capital gains on fixed assets.

Non-resident companies shall be taxed via withholding tax (WHT) at the rate of 20% for income raised in Gabon if they have no permanent establishment (PE) in Gabon.

In cases where non-resident companies have PE in Gabon, they shall be subject to CIT on the income raised in Gabon via the Gabonese PE.

Impôt Minimum Forfaitaire (IMF)The IMF is a lower limit to the CIT and is calculated as 1% of the global turnover carried out during the fiscal year of taxation.

The turnover on which the IMF is calculated corresponds to all the revenues resulting from the operations carried out during the fiscal year, including the financial and exceptional profits.

Minimum de Perception (Minimum of Perception)The Minimum of Perception is the ultimate lower limit to the CIT, as the amount of CIT paid by a taxpayer cannot be less than 1 million Central African CFA francs (XAF), even in the absence of profit.

New companies (as defined in Articles 194, and following, of the Gabonese Tax Code), without consideration of the sector of activity, are exempt from this minimum tax during the first two fiscal years of their existence.

Local income taxesThere are no local government taxes on income in Gabon.

Corporate residence

As a general rule, a resident company is a company that is incorporated under commercial laws in force in Gabon.

Permanent establishment (PE)From a general treaty perspective, a PE designates a permanent business installation through which a company carries out the whole or part of its activity.

The expression ‘permanent establishment’ notably includes the following:

• Head office.• Branch.• Office.• Plant.• Workshop.• Mine, oil or gas shaft, quarry, or other place of natural resources extraction.• Building site or assembly line.


Gabon

Other taxes

Value-added tax (VAT)VAT is a cumulative tax levied on the sale of goods and the provision of services rendered or used in Gabon.

There are four rates of VAT:

• Standard rate: 18%, which applies to all transactions unless otherwise provided for by the law.

• Reduced rates:• 10%, which applies to manufacturing operations and sales of products mentioned

in a limitative list provided by Article 221 of the Gabonese Tax Code, including mineral water, chicken, and sugar.

• 5%, which applies to sales and services relating to cement.• Zero-rate: 0%, which applies to exports and international transports.

Taxable persons are individuals or legal entities carrying out, usually or occasionally, in an independent manner, taxable operations in the scope of an economic activity and for an onerous consideration.

The aforesaid persons, subject to CIT or PIT, being registered or not, are liable to VAT should their turnover out of taxes reach XAF 60 million.

VAT on real estateAccording to article 248 ter of the Gabonese Tax Code, operations in relation to the construction or sale of real estate, such as sales of lands to build on, delivery of new buildings, or self-delivery of some buildings, carried out by persons subject to VAT in the scope of their economic activities are subject to VAT on real estate.

The taxpayer of the VAT on real estate is the builder of the building.

The VAT is payable on the delivery date.

The deeds relating to the transfer of buildings subject to VAT on real estate are subject to registration formalities.

The VAT on real estate is calculated based on the sale price as determined by the parties or on the real value of the real estate in case it is superior.

The applicable rate is 18%.

Special Solidarity Contribution (CSS)CSS is a tax levied on the sale of goods and the provision of services rendered or used in Gabon based on similar principles as VAT.

The CSS must be invoiced, from 1 March 2017, by the taxpayers (natural and legal persons) carrying out, on as usual or occasional basis, taxable transactions whose annual turnover, excluding taxes, is at least XAF 30 million.

The arrangements for the taxation of the said contribution are similar to those applicable to VAT.


Gabon

This contribution aims to replace the contribution to Health Insurance (ROAM) that was formerly due by operators of the mobile telecommunication sector.

The CSS is calculated based on the amount invoiced, out of taxes.

The applicable rate is 1%.

Customs dutiesGabon is member of the Central African Economic and Monetary Community (CEMAC), a customs union that comprises countries from Central Africa.

Merchandise entering into the CEMAC customs territory is subject to importation duties registered into the Customs Tariff.

Four customs regimes are available in Gabon, notably one standard regime and three specific regimes (an exemption regime, a temporary admission regime, and a reduced tax regime).

Apart from customs duties, the importation of merchandise in Gabon is subject to the community tax of integration (CCI) at a rate of 0.4% and to the OHADA withholding (duty) at a rate of 0.05% of the customs value of the imported merchandise.

Excise dutyExcise duty principally applies to luxury goods, such as alcoholic drinks, perfume and cosmetic products, caviar, salmon, cigars, and cigarettes.

The rates of the excise duty are between 25% and 32%.

The Financial Act for 2015 has provided increased excise duty rates for the following goods:

• Local and imported beers: 30%.• Local and imported wines: 30%.• Perfume and cosmetics: 25%.• Cigarettes, cigars, cigarillos, tobacco: 32%.

Tax on propertyTax on buildings (Contributions Foncières des Propriétés Bâties or CFPB) is levied annually at the rate of 15% of the rental value of the building after deduction of 25% for deterioration and maintenance. For properties booked into the assets of a company’s balance sheet, the rental value of the premises is equal to 10% of the gross balance sheet value without being inferior to a tenth of the market value of the premises.

Tax on non-built property is levied annually at the rate of 25% of the taxable revenue corresponding to 4% to 5% of the rental value or 10% of the purchase value.

Transfer taxThe tax on funds transfer is due on remote transfer operations carried out in Gabon at destination of countries outside the Central Africa Monetary Union (UMAC) countries.

The tax is calculated on the amount of the funds to be transferred, except for related fees and commissions paid by the giver.


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The rate of the transfer tax is 1.5%.

Stamp dutyA stamp duty is levied on all paperwork relating to civil and judicial actions and to documents that could be produced in court as evidence.

All signatories for mutually binding contracts, lenders and borrowers for loans, and ministerial officials who receive or modify deeds announcing unstamped deeds or books are jointly responsible for the payment of stamp duties and fines.

Business license taxThe business license tax applies to both individuals and entities, Gabonese and foreign, engaged in a profession, business, or industry in Gabon.

Business license tax corresponds to a professional tax borne annually. It is deductible from the taxable income for CIT purposes.

The rates of this tax vary according to the profession, business, and location within Gabon territory (this tax may vary between XAF 15,000 and XAF 540,000).

The head of the group of companies is exempted from the payment of the business license tax.

Franchise taxThe franchise tax is a fixed annual duty varying from XAF 10,000 to XAF 500,000, according to the size, nature, and location of the company. Each company that carries on a trade, business, or activity that is not expressly exempted is liable for franchise tax.

Activities that are expressly exempted from franchise tax are those carried out by companies of provident, craftsmen, teachers and professors, lyrical and dramatic artists, farmers, cattle-breeders, fishers, etc.

Registration dutiesRegistration duties in Gabon are fixed, proportional, or progressive, depending on the nature of the acts and transfers in question.

Payroll taxesPIT and complementary tax on salary (TCS) are withheld monthly by the employer and paid to the Treasury before the 15th day of the following month.

Social security contributionsEmployers must contribute to the social security system, which consists of the National Social Security Fund (CNSS) and the National Disease Insurance and Social Guarantee Fund (CNAMGS).

The taxable basis for social security contributions to the benefit of the CNSS is made up of gross salaries, including indemnities having the function of a salary and any benefits in kind. However, there is an annual ceiling of XAF 18 million (or XAF 1.5 million per month).

The taxable basis for social security contributions to the benefit of the CNAMGS is made up of gross salaries, including taxable indemnities, up to the limit of a monthly ceiling of XAF 2.5 million.


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The social security contributions due by the employer for both funds are determined according to the following rates:

Contribution to CNSS Rate (%)Family allowances 8Industrial accidents (work injuries) 3Retirement pensions 5Contribution to CNAMGS Rate (%)Health evacuation funds 0.6Medication distribution 2Hospitalisations 1.5Total 20.1

Tax on insurance premiumsInsurance or annuity agreements made with insurance companies or any other Gabonese or foreign insurer are subject to an annual obligatory tax.

The tax is levied on the sums charged by the insurer and on any accessory payments made to this party by the insured party according to the following rates:

Nature of the policies Rate (%)Marine policies 5Life policies ExemptFire policies 30Other (e.g. personal liability, transportation) 8Reinsurance Exempt

Branch income

Taxation of branch income is the same as for corporate income. However, a 20% WHT on profit is due at the time the profit is taken by the head office (located abroad) of the branch. This rate is reduced to 10% in case of the existence of a tax treaty.

Simplified tax regime for oil subcontractorsThere is a simplified tax regime specific to the oil sector, which is a lump-sum tax regime granted for a biennial period. The request to benefit from such a tax regime is renewable for an additional period of two years, at least. Should the biennial period end after the first quarter of a considered year, the benefit from the simplified tax regime will apply until the end of the said year.

Features of this specific regime are as follows:

• The option for this regime is irrevocable for a period of two years, renewable once.• The total duration of the benefit of such a regime can’t exceed four years.• The companies must perform their activities exclusively in the scope of oil

operations.• The option is granted by the Director of the General Tax Office to foreign companies.• The subcontractor must have signed, with an oil company, a temporary agreement

for the provisions of services to this company.


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• The option is no longer granted to companies that have been in Gabon for more than nine years. The duration of nine years is calculated from the year during which the company started its activities in Gabon.

• The subcontractor must constitute a Gabonese branch office.

The rate for the 2015 and 2016 fiscal years is 8.75%, corresponding to CIT (5.95%) and PIT for expatriate employees (2.80%). No new rates have been published so far for 2017.

Specific regime for regional offices (quartiers généraux)A regional office is a company or a branch that renders various administrative services, such as management or accounting, exclusively to other companies of the same group based in a given geographical area (usually a group of countries).

Taxation is based on the expenses of the regional office. A rate, between 5% and 12%, is applied to operating expenditures to determine the tax basis. The CIT rate is then applied to that basis.


Inventory valuationStocks are estimated at cost price. If the market price is lower than the cost price, the company has to make provisions for depreciation of inventory.

Capital gainsCapital gains arising from the transfer of assets must be used for the calculation of taxable profits. However, the tax on capital gains can be deferred if a company reinvests an amount equal to the capital gain and the sale price of the transferred asset back into its fixed assets within three years.

Capital gains realised on the transfer of legal rights of persons or entities, whose asset is, in its majority, constituted of such rights or rights directly or indirectly owned in a company located in Gabon, are subject to CIT in Gabon.

Dividend incomeThe rate of transferable securities income tax (Impôt sur le Revenu des Capitaux Mobiliers or IRCM) is 20% on distributed dividends.

IRCM charged on the beneficiaries of the earnings is withheld at source by the distributing company. It is paid over to the Registration Officer within 30 days from the payment of the dividends.

Inter-company dividendsInter-company dividends are taxed at a reduced rate in full discharge of the 20% WHT if paid and received by or from companies with their registered office in a CEMAC country, shares were allotted at the time of issue or kept for two years, and the Gabonese company owns more than 25% of the share capital of the subsidiary.

Interest incomeInterest income paid to companies is subject to a 20% WHT in Gabon. When paid in respect of bonds of five years or more, it is subject to a 10% WHT.


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Royalty incomeRoyalty income is subject to CIT at a rate of 30% (35% for companies operating in the oil and mining sectors).

Foreign incomeForeign interest, royalties, and dividends are included in taxable income, subject to international tax treaties. Note that tax treaties provide that certain/all types of income are not includable in Gabon taxable income. Gabon has tax treaties with Belgium, France, the other countries of CEMAC, and some countries that continue to apply the provisions of the African and Malagasy Common Organisation (OCAM) tax treaty.

The concept of deferred tax is not applicable in Gabon.

Deductions

DepreciationThe straight-line method and an accelerated depreciation method are permitted in Gabon. Tax and book conformity is obligatory (i.e. annual depreciation must be booked to preserve tax deductibility).

The main depreciation rates provided by the Gabonese Tax Code are the following:

Asset Rate (%)Buildings 5Machinery, equipment 5 to 33.33Office furniture 15Office equipment 10Vehicles 20 to 33.3Computing equipment 25 to 100

GoodwillThere is no provision in the Gabonese Tax Code concerning the tax treatment of goodwill.

Start-up expensesDuring the first five years of activity, a start-up can use an accelerated depreciation method on the acquired equipment goods under certain conditions and subject to specific provisions of the Gabonese Tax Code applicable to start-ups. Applicability of these provisions must be requested from the General Tax Manager prior to the incorporation of the company.

Interest expensesInterest paid to shareholders with respect to the sums made available by them to the company is only deductible within the global limit amounting to half of the share capital and within the limit of the intervention rate on invitation to tender (TIAO) of the Bank of the Central African States (BEAC) raised by 2%, provided that the share capital is fully paid up.


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Bad debtBad debt can be deducted from the result of the fiscal year during which the debt became completely unrecoverable, subject to the irrecoverable character of the compromised debt being justified due to the situation of the debtor.

ProvisionsTo be tax deductible, provisions must relate to existing liability or loss. General provisions are not deductible.

Expenditures on rentThe amount of the rentals granted to a company is allowed as a deductible expense under the condition that it does not exceed the average rentals applied for similar buildings and amenities.

Charitable contributionsCharitable contributions do not, in principle, constitute expenses deductible from the taxable result. However, contributions for charity can be deducted, provided that the donation is made to the profit of organisms of public interest located in Gabon and that the donation is justified.

The deduction is limited to 1/1,000 of the company’s turnover for the considered fiscal year.

Fines and penaltiesFines and third-party taxes borne by companies are not tax deductible.

Social security contributions paid to foreign retirement fundsThe deductibility of social security contributions paid by the employer to foreign retirement funds are only allowed when paid to the benefit of employees in secondment and within a limit of 15% of the gross salary paid to these employees.

TaxesOnly professional taxes for which the recovery proceeding has started in the current fiscal year and for which the company is effectively liable due to operations carried out in Gabon can be deducted.

Net operating lossesThe Gabonese Tax Code does not provide the possibility to carry back losses. It does, however, provide for a five-year carryforward for net operating losses.

Regarding depreciation deferred in the accounts, they can be carried forward indefinitely.

Payments to foreign affiliatesManagement fees paid to a foreign parent company are deductible if they meet all of the following conditions:

• They reflect real transactions.• They do not present an abnormal characteristic.• They are not exaggerated.

Management fees determined on a lump sum basis are not deductible.


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Management fees exceeding 10% of the taxable profit before deduction of the said fees are not deductible.

Interest paid to shareholders is deductible only within the limit of the BEAC’s normal rate for advances plus 2%, on the condition that the registered capital is entirely paid. The portion exceeding the ceiling is not deductible and is thus subject to taxation.

Group taxation

Specific group tax regimeThere is a specific tax regime derogatory to the common law tax regime that is applicable, under conditions, to groups of companies.

According to the provisions of Article 11 b. of the tax measures applying to groups of companies, groups of companies are those constituted by companies subject to CIT, or a foreign equivalent tax, united between them through direct or indirect capital links of at least 50% and that allow one of them or several companies, jointly, to control the others.

The control is defined as:

• either the direct or indirect holding of the majority of the vote in another company or

• the nomination, during two consecutive years, of the majority of the members of the board of directors of another company.

To be eligible for this specific tax regime, and without any prejudice of other activities performed to the profit of third parties, the head of the group of companies must perform to the profit of other companies of the group an activity relating exclusively to the following fields:

• Provisions of services of any kind, notably technical, accounting, financial, administrative, data processing, legal, human resources, and commercial corresponding to functions of management, coordination, and control of the group’s companies.

• Research and development (R&D) to the sole profit of the group.• Management of the intra-group finance.

Each company subject to CIT that is a member of the group and fulfils the conditions provided by the law will be subject to a separate taxation of its results according to the rules of common law and subject to amendments expressly provided by the law for the determination of the taxable result.

The express amendments provided in the scope of the specific tax regime applicable to groups of companies are the following:

Capital gainsNet capital gains are taxed at a reduced rate of 20% when they are realised in the scope of intra-group operations.

Expenses deductible from the taxable result subject to CITThe following expenses are deductible within the group:


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• Head office fees and management fees determined on a lump sum basis, according to the conditions of allocation of the expense between the companies’ members of the group defined in a previous ruling with the tax authorities.

• The whole of the interests on partners’ current accounts (i.e. on the sums put, by the partners, at the disposal of a company of the group) within the sole limit of the intervention rate TIAO of the BEAC (equivalent to 2.85%) raised by 2%.

• Rents of movables carried out within the group by the mother company or between companies of the same group.

20% WHTSums subject to CIT according to the provisions of Article 206 of the Gabonese Tax Code paid by a Gabonese debtor member of a group of companies to a foreign company member of the same group are exempted from the 20% WHT even though no DTT aiming to avoid double taxation has been concluded between Gabon and the country of residence of the beneficiary of the remunerations.

Transferable securities income tax (IRCM)Companies of the group that benefit from transferable securities income originating from Gabon are exempted from IRCM when the said revenues are paid by a company member of the group.

In return, payments carried out by the head of the group of companies to the profit of its partners (individuals or legal entities) are subject to IRCM at a unique and at source rate of 10% (instead of 20%).

It is to be noted that the transferable securities incomes having their source abroad and which gave rise to taxation in their country of origin give the right in Gabon to a tax credit of the amount of the taxation that is deductible from the CIT of the fiscal year of perception of the incomes. The aforesaid tax credit applies even though no DTT aiming to avoid double taxation has been concluded between Gabon and the country of origin of the incomes.

VATThe head of the group of companies is liable for VAT.

Members of a group of companies could, however, on option, consider the following provisions of services performed within the group as being out of the scope of application of VAT:

• Provisions of services of any kind, notably technical, accounting, financial, administrative, data processing, legal, human resources, and commercial.

• Fees relating to studies.• Putting at disposal of personal.• Management of finance.

The option for the subjection of the abovementioned operations must be formulated by the concerned taxpayers on express request addressed to the General Tax Manager.

Registration dutiesDeeds relating to incorporation, increase or reduction of share capital, breaking up with or without clearance, merger, scission, partial contribution of assets, and transfer of shares of a company member of a tax group, are subject to a fixed duty of XAF 50,000.


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In the absence of a more favourable duty provided by the common law of registration, the changes of ownership and use that are not provided at Article 6 of the Gabonese Tax Code are subject to a proportional rate of 1% when carried out by members of the same tax group.

Requirements relating to declaratory obligationsThe adherence to the group tax regime must be notified in writing by the head of the group of companies to the General Tax Manager accompanied by the list of the companies included in the tax perimeter of the group.

Each company remains liable for the periodical returns applicable to its activity.

For the purpose of calculation and verification of the returns, each tax return relating to the CIT of each company of the group will be gathered and filed at the same time by the head of the group of companies before the Tax Office.

Transfer pricingThe Gabonese Tax Code provides rules regarding transfer pricing issues.

According to these rules, any payment considered to be a result of mismanagement will be subject to the CIT rate at 30% (35% for companies operating in the oil and mining sectors) plus penalties.

Indeed, Article 12 of the Code provides that “By virtue of law or in fact, for companies which are dependent of companies or groups of companies located outside the CEMAC area, or for those which possess the control of companies located outside the CEMAC area, payments or expenses realised by any mean whatsoever or any kind of advantages or help granted to third parties without equivalent counterpart for the company, comparable to abnormal act of management, constitute transfer of profits subject to corporate income tax”.

It is applicable for the following:

• Payments constituting an increase or decrease of purchases or sales.• Payments of excessive royalties or royalties without compensation.• Relinquishment of revenues (underestimated sale price, free of charge service

provision, granting of a free loan or a loan with low interests).

The abnormal act of management is not limited to expenses; it also includes any form of advantages or allowances granted to third parties without any equivalent compensation for the company.

Article 13 of the Gabonese Tax Code provides that “The advantages or assistance granted by companies belonging to the same group can only be considered as resulting from a normal management if the company which grants these advantages or assistance demonstrates the existence of its own interest in acting as such. The general interest of the group is not sufficient to justify such practices”.

Further to the Financial Act for 2017 implementing the OECD regulation, a Master file containing information about the group structure and a Local file in relation to the structure, transfer pricing policy, and group transactions of the local entity must be provided to the tax authorities on a yearly basis, at the same time as the Annual Tax Return (DSF).


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The Financial Act for 2017 has also introduced penalties, in case of failure to provide the Master and Local files, corresponding to 5% of the transactions realised with companies of the group with a minimum of XAF 65 million per year.

In addition, a Country-by-Country (CbC) report must be filed by the ultimate parent company of the group before the tax administration of which it depends.

Thin capitalisationThere is no specific tax rule under Gabon legislation related to thin capitalisation.

Controlled foreign companies (CFCs)There is no specific tax rule under Gabon legislation related to CFCs.


Foreign tax creditDTTs include provisions relating to the attribution of foreign tax credits. Such tax credits aim to limit the double taxation of profits that are subject to taxation in both member states of the treaty.

Tax credits for job creationThere is a mechanism in place for granting corporate tax credits for any salaried appointments of Gabonese personnel.

This tax credit is equal to 20% of the gross salary paid to new employees and is subject to the creation of a minimum number of jobs, according to the size of the company as follows:

• Two jobs, for companies with less than 20 employees.• Three jobs, for companies with 20 to 50 employees.• Five jobs, for companies with more than 50 employees.

Note that the tax credit is granted only on newly created jobs since the preceding fiscal year. Contracts concluded with the employees must also be for an undetermined duration, and the new jobs must not result from the diminution of existing jobs.

Inbound investment incentivesDue to the provisions of the Investments Law, any private investment in Gabon can benefit from:

• A common law framework.• Privileged frameworks.• Specifically agreed frameworks.

Depending on the frameworks it is eligible for, a company can benefit from customs privileges and tax breaks.

Industrial companies already set up in Gabon and wishing to increase their production capacity can be admitted to a preferential tariff framework. This entails the application of a global reduced rate of 5% for duties and taxes paid on imports of equipment (excluding materials, furniture, and spare parts), provided that these correspond to an investment schedule and their value is in excess of XAF 100 million.


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New industrial companies can also benefit from this framework, provided they are not subject to any of the other privileged frameworks outlined by current legislation.

The granting of this privileged tariff framework occurs on the basis of a decision by the Minister of Finances, following a proposal from the Director of Customs and Indirect Taxes.

Capital investment incentiveNew companies are exempt from the IMF, the minimum taxation of CIT, during the first two years of operations.

Social housing incentiveThere are some tax exemptions applicable exclusively to authorised companies during the performance of a social housing investment project.

Favourable measures are applicable with regards to the importations of materials, engines, and equipment destined to authorised companies. Indeed, such importations are exempt from customs duties. They can also be imported under the normal temporary admission.

The concerned companies may apply before the customs authorities in order to benefit from the abovementioned regime.

The concerned companies are those authorised for the planning of urban lands intended for social habitat and the building of housings of a socio-economic nature and industrial units of manufacturing of materials and other inputs used for the building of social housings. The abovementioned tax exemptions relate to CIT, VAT, and business license tax.

Tourism incentiveCompanies having hotel activity in the tourism sector are exempted from CIT during the first three years of existence, provided that the amount of the investment equals or exceeds XAF 300 million. If not (i.e. investment of less than XAF 300 million), aforesaid authorised companies investing in the tourism sector can benefit, during a five-year period, from a 5% tax credit.

Withholding taxes

20% WHTWhen they are paid by a debtor established in Gabon to individuals or companies subject to CIT or PIT that do not have a permanent professional base in Gabon, the following amounts are subject to a 20% WHT:

• All amounts paid pursuant to the practice of an ‘independent profession’ in Gabon.• Payments received by inventors, payments relating to copyrights, and all payments

relating to intellectual and commercial property as well as assimilated rights.• All amounts paid for services materially rendered or effectively used in Gabon.• Interest, arrears, and all others fixed-income investment-products pertaining to

income declared as professional revenue of the beneficiary.


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Net profits carried out by branches of foreign companies having their head offices abroad are also subject to a 20% WHT in Gabon before they are taken into account by the foreign companies.

The WHT of 20% may not apply in the context of the application of a DTT, as follows:

Recipient Dividends (%) Interest (%) Royalties (%)Belgium (1) 18 15 10Canada (1) 15 10 10France (2) 15 10 10Morocco (2, 3) 15 10 10

Notes

1. If the beneficial owner of the dividends, interest, or royalties is a resident of the other contracting state.2. If the person receiving the dividends, interest, or royalties is the beneficial owner.3. The tax treaty concluded between Gabon and Morocco has not yet been notified.

Transferable securities income tax (IRCM)IRCM is due at a 20% rate on revenues from stocks and shares paid to legal entities. It is due by beneficiaries of these revenues and must be withheld by the distributing company.

Tax administration

Taxable periodCompanies are required by law to have a 31 December closing of any fiscal year.

Tax returnsReturns for the previous calendar year are to be filed before 30 April of each year.

Payment of taxTax is payable to the General Tax Office in two instalments on 30 November and 30 January. The balance of the tax due must be paid by 30 April. The first instalment must equal one-quarter of the tax assessed in the previous year and the second instalment must equal one-third of this tax.

Tax audit processThe rules concerning the tax audit procedure are provided by the Gabonese Tax Code.

There is no specific rule on the selection of companies to be subject to a tax audit. However, it has to be noted that, generally, the tax administration proceeds by sectors of activities.

The Tax Inspectors proceed to audits at the head office or at the place of the taxpayer’s main establishment.

The main steps of the tax audit are the following:

• Notification of a tax audit by which the taxpayer is informed on the date of performance of the tax audit.

• Performance of the audit.• Provisions of a notification of reassessment.


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• Provision, by the taxpayer, of its answers to the notification of reassessment (to be provided within a delay of 20 days from the receipt of the notification).

• Reply of the tax administration to the answers of the taxpayer (to be provided within a delay of 60 days from the receipt of the above-mentioned answer from the taxpayer).

• Closing of the tax audit.

Statute of limitationsThe tax administration can proceed to tax audit until the fourth year following the year for which the tax is due.

Topics of focus for tax authoritiesThe tax administration shall particularly focus on the following aspects:

• Compliance of deductibility of management fees.• Compliance of deductibility of corporate expenses.• Compliance of WHT on payments made to foreign services providers.• Payment of VAT on behalf of third parties.

Other issues

Legal reserveAccording to the provisions of the OHADA Uniform Act relating to commercial companies and economic interest groups, one-tenth of the year’s profits, reduced, if applicable, by any previous losses, must be put into a reserve account named ‘Legal Reserve’.

The endowment of this reserve ceases to be obligatory when its value reaches one-fifth (20%) of the company share capital.

Tax regime of merger and similar operationsThere is a specific tax regime derogatory from the common law applicable to the following operations:

• Mergers.• Scissions.• Partial transfers of assets.• Subsidiarisation.

This regime only applies to operations performed by companies liable to CIT.

The benefit of this specific tax regime is also subject to the fulfilment of conditions listed in the Finance Act for 2015.

This Finance Act also provides the provisions applicable to the abovementioned operations regarding the following taxes:

• CIT.• VAT.• Registration duties.

Ghana 158www.pwc.com/taxsummaries

Ghana

PwC contact

George KwatiaPricewaterhouseCoopersNo. 12 Airport CityUna Home, 3rd FloorAccraGhanaTel: +233 302 761 459Email: [email protected]


The Income Tax Regulation, 2016 (L.I. 2244) (ITR), which entered into force on 3 August 2016, revokes the Internal Revenue Regulation, 2000 (L.I. 1675). The ITR is largely for providing clarity for the better carrying into effect of the provisions of the Income Tax Act, 2015 (Act 896). This summary has been updated to reflect the ITR.

AmendmentsOne of the key targets of the new government in Ghana is to shift the focus of economic management from taxation to production. In lieu of this, parliament passed into law the following proposed amendments outlined in the 2017 budget:

Direct taxes

• Exemption from tax on gains from realisation of Ghana Stock Exchange (GSE) listed securities and Securities and Exchange Commission (SEC) approved securities.

Indirect taxes

• Reduction of the value-added tax (VAT) and National Health Insurance Levy (NHIL) rate to a flat rate of 3% on certain supplies with respect to wholesalers and retailers of goods.

• Exemption from VAT and NHIL on the supply of domestic air transport, immovable property by a real estate developer, financial services, and residual fuel oil.

• Removal of the Special Import Levy of 1% on the cost, insurance, and freight (CIF) value of certain imported goods.

• Reduction of the special petroleum tax imposed on supply of specified petroleum products by licensed oil marketing companies to 15%.

• Removal of the excise duty on petroleum through the repeal of the Customs and Excise (Petroleum Taxes and Petroleum Related Levies) Act, 2005 (Act 685).

InitiativesBelow are some of the tax policies or initiatives the new government intends to undertake during the year 2017.

Direct taxes

• Two-year stamp duty waiver for investments in the financial services sector.• Granting of tax credits to businesses that hire young employees.

PwC Worldwide Tax SummariesGhana159

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Indirect taxes

• Abolish the 17.5% VAT and NHIL on selected imported medicines.• Abolish import duties on spare parts.• Negotiate the removal of import duties on raw materials and machinery for

production in line with the ECOWAS CET Protocol.

Tax administration

• Initiate a self-assessment regime for small taxpayers.• Increase tax revenues from pay-as-you-earn (PAYE) by enforcing the filing of an

annual employer schedule, reconciling SSNIT and Ghana Revenue Authority (GRA) data, and roping in practicing professionals.

• Intensify transfer pricing audits for the extractive sector.• Conduct integrated audits for free zones and specialised sectors.• Deploy electronic point of sale devices by the third quarter of 2017 to monitor VAT

transactions.• Full implementation of the excise tax stamp regime.• Replace the outright tax relief system for imports with a refund system.• Review customs duties and the tax relief system for governmental and non-

governmental institutions, charities, the private sector, and specified individuals enjoying the reliefs.

• Improve informal sector taxation through the use of the national identification scheme.


A resident’s worldwide income is assessed for tax. Income from business and investment worldwide is included in determining the resident person’s assessable income.

The business and investment income of a non-resident person is included in the assessable income for a year of assessment if that income has a source in Ghana. Where a non-resident person has a Ghanaian permanent establishment (PE), any income connected with the PE is assessed to tax.

The general corporate income tax (CIT) rate is 25%.

Mining and upstream petroleum companies pay CIT at a rate of 35%, while companies principally engaged in the hotel industry pay a reduced rate of 22%.

The CIT rate for companies engaged in non-traditional exports is 8%, while banks lending to the agricultural and leasing sectors pay a CIT rate of 20% on income from those businesses.

National Fiscal Stabilisation Levy (NFSL)The NFSL applies to specified companies and institutions to raise revenue for fiscal stabilisation of the economy. The NFSL is 5% on the profit (accounting profit) before tax on specified companies. The specified companies and institutions include:

• Banks (excluding rural and community banks).• Non-bank financial institutions.


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• Insurance companies.• Telecommunications companies liable to collect and pay the communications

service tax (CST) under the CST Act, 2008 (Act 754).• Breweries.• Inspection and valuation companies.• Companies providing mining support services.• Shipping lines, maritime and airport terminals.

The levy shall apply to the aforementioned industries irrespective of any existing exemption granted to an entity under any other laws in Ghana. The tax payable shall not be a deductible expense in arriving at the CIT liability of an entity, and the Commissioner-General (CG) shall issue an assessment to an entity for the amount of tax payable for the period.

NFSL is payable in four equal instalments at the end of each quarter (i.e. March, June, September, and December).

The NFSL was initially scheduled to end in December 2014 but has been extended to 2017.

Local income taxesGhana has no local, state, or provincial government taxes on income.

Corporate residence

A company is resident if it is incorporated under the laws of Ghana or has its management and control exercised in Ghana at any time during a year of assessment.

Permanent establishment (PE)The Income Tax Act, 2015 (Act 896) (ITA) recognises both Ghanaian PE and foreign PE.

A Ghanaian PE includes:

• a place in the country where a non-resident person carries on business or that is at the disposal of the person for that purpose

• a place in the country where a person has, is using, or is installing substantial equipment or substantial machinery

• a place in the country where a person is engaged in a construction, assembly, or installation project for 90 days or more, including a place where a person is conducting supervisory activities in relation to that project, or

• the provision of services in the country.

A foreign PE means a fixed place of business situated in a foreign country where the business is conducted continuously for at least six months, but excludes any place at which only activities of a preparatory or auxiliary nature are conducted.

Other taxes

Value-added tax (VAT)Other than exempt goods and services, VAT and National Health Insurance Levy (NHIL) are charged on the following:


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• Supply of goods and services made in Ghana.• Importation of goods.

The standard VAT rate is 15% and the NHIL is 2.5%, except for supplies of a wholesaler or retailer of goods, which is a total flat rate of 3%.

VAT and NHIL are charged on the supply of goods and services where the supply is a taxable supply and made by a taxable person in the course of business.

VAT and NHIL are payable by the taxable person making the supply in the case of taxable supply and by the importer in the case of imported goods.

Most professional services are also subject to the same VAT and NHIL rates, including the following:

• Management services.• Insurance brokerage and other services.• Financial, tax, and economic consulting.• Engineering and technical services.• Accounting services.• Courier services.• Legal services.• Provision of satellite television.• Architectural services.• Services rendered by surveyors.

Exports of goods and services are zero-rated. Unless specifically exempt, supplies of all goods and services are subject to VAT.

The special petroleum tax imposed on supply of specified petroleum products by licensed oil marketing companies has been amended to 15% (from 17.5%).

A person entitled to relief is required to pay the tax and apply for refund unless otherwise directed by the Minister responsible for finance.

Customs and excise dutiesCustoms and excise duties are imposed on the importation of goods at the port of entry and certain manufactured goods produced or imported into Ghana.

The following rates of excise duties apply on the ex-factory price:

Product Rate (%)Sachet water 0Bottled water 17.5Malt drink 2.5 to 17.5Beer 10 to 47.5Spirits 0 to 25Cigars and cigarettes 175Snuff and other tobacco products 175

The excise duty payable on malt drinks, beer, and stout, other than indigenous beer, is determined by the percentage of local raw materials used. Local raw materials do not include water.


Ghana

In addition, the Special Import Levy Act was amended to impose a levy of 2% on the cost, insurance, and freight (CIF) value of certain imported goods.

Property taxesProperty tax rates are payable by owners of immovable property to the local District Assembly. The rate of property tax differs depending on the location of the property.

Stamp taxesStamp duty is paid, at rates ranging between 0.25% to 1% and 0.05 Ghana cedi (GHS) to GHS 25, depending on the type of transaction and the instrument. A stamp duty of 0.5% applies on the initial stated capital and any subsequent increase in the stated capital.

The stamp duty is not a tax on transactions but on documents brought into being for the purposes of recording transactions. It is therefore a tax on documents or specific instruments that have legal effect, such as the following:

• Insurance policies.• Awards of cost in matters of dispute.• Conveyances or transfers on the sale of any property.• Appointment letters of new trustees.• Natural resource leases or licences (e.g. mining, timber).• Agreements or memoranda of agreement.• Bills of exchange (e.g. issue of cheques).• Bills of lading.

Payroll taxesEmployers are required to withhold tax (pay-as-you-earn or PAYE) on employees’ salaries and other emoluments, including benefits in kind, on a monthly basis at the graduated rates, with the highest rate at 25%, and remit it to the GRA by the 15th day of the subsequent month. Failure to withhold the tax and remit to the GRA on the due date attracts an interest penalty of 125% of the statutory rate, compounded monthly, applied to the amount outstanding at the start of the period.

Employers are also required to file annual returns of employees by 31 March of the year following the year to which the returns relate.

Social security contributionsThe social security contribution scheme is structured into three tiers, with the first two requiring mandatory contributions and the last one being voluntary. The employee is required to contribute 5.5% with the employer contributing 13%. Of the total contribution of 18.5%, 13.5% is contributed to the first tier and 5% to the second tier schemes.

Communications service tax (CST)CST of 6% is levied on charges payable by both individual and corporate users of electronic communication services (ECS) provided by service providers other than private electronic communication services. The levy is also applicable to any form of recharge and is payable once a person makes a payment for ECS regardless of whether or not that person is authorised or permitted to provide ECS under the Electronic Communication Act (Act 755). Note that the definition of electronic communication includes interconnection.


Ghana

Local business permitsBusiness ‘permits’ are payable annually to local district assemblies or municipal authorities. The amount is dependent on the physical location where business activity is conducted. It is therefore possible that if a taxpayer operates from two business locations in different regions, such permits would be paid to two different local authorities.

Branch income

The CIT rate on branch profits is the same as that on corporate profits.

However, a non-resident person that conducts activities in Ghana through a branch pays tax at 8% on earned repatriated profits, payable within 30 days. The portion of net profit of the resident person that corresponds to interest of the non-resident shareholders is treated as repatriated profits. The repatriated profit is also treated as a dividend distributed in accordance with the respective shares of the non-resident person.


Inventory valuationThe ITA, under Section 11, provides general guidance on the principles of stock (inventory) valuation for income tax purposes. A person making a determination of the cost of trading stock is required to use the absorption cost method. The owner of a trading stock or other fungible assets may determine the cost of that asset by using the first in first out (FIFO) method or the average cost method. The closing value of inventory is valued for tax purposes at the lower of cost or market value.

Capital gainsCapital gains are now included as part of business income and taxed at 25%. They are no longer taxed separately.

Dividend incomeA dividend paid to a resident company by another resident company is exempt from tax where the company receiving the dividend controls, directly or indirectly, 25% or more of the voting power in the company paying the dividend.

Stock dividendsThe issue of stock dividends is permitted under Section 74 (1) of the Ghana Companies Code 1963, Act 179. It is, however, subject to income tax at the dividend withholding tax (WHT) rate of 8%.

Interest incomeInterest received by a resident company from another resident company is subject to WHT at a rate of 8%.

However, WHT does not apply to interest received by a resident financial institution.

Royalty incomeRoyalty income received by a company is included in the investment income and taxed at the applicable corporate tax rate with a general rate of 25%.


Ghana

Mineral royaltiesThe mineral royalty rate is 5% of the total revenue earned from minerals (excluding petroleum and water) obtained from mining operations by a holder of a mining lease, restricted mining lease, or small-scale mining licence.

Exempt incomeSpecific exemptions from tax include the following:

• Income of a local authority.• Income of a statutory or registered building society where only individuals are

eligible to be members and the organisation does not engage in political party activities.

• Non-business income of a charitable organisation.• Pensions.• Income of organisations formed for the purpose of promoting social or sporting

amenities.• Income of a registered trade union.• Gain or profit from the business of operating ships or aircraft by non-resident

persons if an equivalent exemption is granted by the person’s country of residence to persons resident in Ghana.

• Retirement contributions received by a retirement fund.

Foreign incomeResident corporations are taxed on their worldwide income. Foreign income is taxed together with other income derived in Ghana, and double taxation is avoided through treaties or foreign tax credits. No special rules exist for taxing undistributed income of foreign subsidiaries.

Deductions

Depreciation and depletionDepreciation of depreciable assets in the accounts of a business is not an allowable deduction in computing taxable profits. It is instead replaced by capital allowances at prescribed statutory rates, as follows:

Class Assets Rate1 Assets pooled (allowance calculated on a reducing-balance basis). Mainly

computers and data handling equipment together with peripheral devices.40%

2 Assets pooled (allowance calculated on a reducing-balance basis). Mainly automobiles, buses, mini buses, construction and earth-moving equipment, trailers and trailer-mounted containers, plant and machinery used in manufacturing.

30%

3 Assets pooled (allowance calculated on a reducing-balance basis). Mainly railroad cars, locomotives and equipment, vessels and similar water transportation equipment, aircraft, public utility plant and equipment, office equipment and fixtures, and any other depreciable asset not elsewhere classified.

20%

4 Buildings, structures, and similar works of a permanent nature (allowance calculated using the straight-line method)

10%

5 Intangible assets Useful life6 Mining and petroleum expenditure (allowance calculated using the straight-line

method)20%


Ghana

Allowances are granted only on the following conditions:

• The taxpayer must own the asset.• Capital expenditure must be incurred.• The asset must be used in the trade.• The asset must be in use up to the end of the basis period.• Capital allowances are granted for every year in which the asset is in use. Balancing

allowances and charges are made, as the case may be, on disposal of the asset.

For intangibles, such as goodwill, patents, trademarks, and copyrights, the law allows for capital allowance deduction over the useful life of the asset.

Start-up expenses and pre-operating costsAlthough the tax law does not specifically mention start-up expenses or pre-operating costs, generally a deduction is allowed for start-up and pre-operating costs incurred by a business, provided such expenses are wholly, exclusively, and necessarily incurred in the production of income of the taxpayer.

Interest expensesInterest incurred on loans used to generate the income of a business is ordinarily deductible. Restrictions apply on interest payments on related loans. See Thin capitalisation in the Group taxation section.

Financial costsDeductions for financial costs other than interest are limited to the sum of:

• financial gains derived by the person that are to be included in calculating the income of the person from the investment or business for the year of assessment, and

• 50% of the chargeable income of the person for the year from the business or investment calculated without including financial gains derived by the person or financial costs incurred by the person.

Bad debtsA deduction is allowed for bad debts incurred in the normal course of business, other than advances made on capital accounts. A bad debt is allowed as a deduction if the CG is satisfied that the taxpayer has taken all reasonable steps to pursue payment and the person reasonably believes payment will not be made.

Any amounts recovered in respect of a bad debt previously written off should be included in income and subject to tax accordingly.

An existing debt that becomes a bad debt after a 50% or more change in underlying ownership is not allowed as a bad debt deduction after the change in ownership has taken place.

Charitable contributionsThe following contributions/donations are allowable as deductions in ascertaining the taxable income of a person:

• Contributions made to a charitable institution or fund approved by the government.• Payments towards a scholarship scheme approved by the government for a technical,

professional, or other course of study.


Ghana

• Donations made for the purpose of any rural or urban area and approved by the government.

• Donations for the purpose of sports development approved by the government.• Donations to the government for worthwhile government causes approved by the

CG.

Fines and penaltiesFines and penalties arising as a result of non-compliance with the provisions of the tax law are generally not allowable deductions.

TaxesAny income taxes, profit taxes, or other similar taxes are not deductible in determining taxable income.

Other significant itemsNo other special deductions are allowed. Principal non-deductible expenses include the following:

• Domestic or private expenses, including cost of travel between residence and place of business or employment.

• Any disbursement or expense not being wholly and exclusively paid or expended for the purpose of acquiring income.

• Capital withdrawn or any sum employed or intended to be employed as capital.• Capital employed in improvement.• Any sum recoverable under an insurance contract of indemnity.• Rent of or any expense in connection with premises or a part of premises not

occupied or used for the purpose of producing business income.• Any payment to a savings or other society or fund unless specifically allowed by the

CG.

Net operating lossesTax losses can be carried forward for all sectors and deducted from assessable income for the three years immediately following the year in which the loss was incurred. Specified priority sectors can carry forward their tax losses for up to five years. Carryback of losses is permitted for persons deriving income relating to a long-term contract (except where there is a more than 50% change in underlying ownership within a period of three years). A long-term contract of a business includes a contract for manufacture, installation, or construction that is not completed within the company’s accounting year in which it is commenced.

Payments to foreign affiliatesThe Transfer Pricing Regulations 2012, (LI 2188) require that payments or transactions between persons in a controlled relationship are conducted at arm’s length. A transaction is conducted at arm’s length between persons in a controlled relationship if the terms of the transaction do not differ from the terms of a comparable transaction between independent persons. The CG may disregard or disallow transactions if they are deemed to be fictitious or do not have a substantial economic effect and the form does not reflect its substance.


Ghana

Group taxation

No form of combined reporting of results of operations by a group or affiliates is permitted.

Transfer pricingThe Transfer Pricing Regulations follow the internationally accepted guidelines published by the Organisation for Economic Co-operation and Development (OECD), only with a much broader perspective on the nature of entities and transactions.

The Regulations cover transactions between related parties, including PEs and employees, and also prescribe the transfer pricing methods and documentation that entities are required to maintain and retain.

The Regulations also require entities with related-party transactions to file a return on an annual basis.

Thin capitalisationInterest expenses and foreign exchange currency losses incurred on related-party debt by an entity (other than a financial institution) in which 50% or more of the underlying ownership or control is held by an exempt person, either alone or together with an associate, are not allowed as a deduction in arriving at the chargeable income of the entity if the entity is thinly capitalised. An entity controlled by an exempt person is deemed to be thinly capitalised if its debt-to-equity ratio exceeds the ratio 3:1.

Thin capitalisation provisions do not apply to resident financial institutions.

Controlled foreign companies (CFCs)There are no provisions for CFCs in the tax laws of Ghana.


Foreign tax creditA resident is entitled to a credit in respect to any foreign income tax paid, to the extent to which the tax paid is in respect of the resident’s foreign taxable income. The foreign tax credit available on a specific income type should not exceed the average rate of Ghanaian income tax of the resident for a year.

Inward investmentUnder the Ghana Investments Promotion Centre Act, 2013 (Act 865), various incentives are available to encourage strategic or major investments in the country, particularly in the areas of agriculture; manufacturing industries engaged in export trade or using predominantly local raw materials or producing agricultural equipment, etc.; construction and building industries; mining; and tourism.

Incentives generally include exemption from customs import duties on plant and machinery; reduced CIT rates; more favourable investment and capital allowances on plant and machinery; reduction in the actual CIT payable, where appropriate; retention of foreign exchange earnings, where necessary; guaranteed free transfer of dividends or net profits, foreign capital, loan servicing, and fees and charges in respect of technology transfer; and guarantees against expropriation by the government.


Ghana

Capital investmentsVenture capital tax incentives include the following:

• Relief from stamp duty in each year on subscriptions for new equity shares in venture capital funds.

• Interest and dividends from investment in a venture capital company are subject to tax at 1% for the first ten years of assessment.

• Chargeable income is subject to tax at 1% for the first ten years of assessment.• Carryforward of losses for five years after the year of disposal.• Carryforward of losses from disposal of investment in a venture capital subsidiary

for five years after the ten years of assessment.

Free zone developers/enterprisesCompanies registered to operate as free zone developers/enterprises do not pay CIT for the first ten years of operation. After the ten year corporate tax holiday has expired, the CIT rate on export outside the domestic market is 15% while income earned from sales in the domestic market is taxed at 25%.

Construction of residential premisesThe income of a certified company from a low cost housing business is subject to tax at 1% for a period of five years of assessment.

Withholding taxes

Income WHT rate (%) Final taxResident persons:

Interest (excluding individuals and resident financial institutions) 8 NoDividend 8 YesRent (on residential properties as investment income) 8 YesRent (on commercial properties as investment income) 15 YesRoyalties and natural resource payments 15 NoFees to lecturers, invigilators, examiners, part-time teachers, and endorsement fees

10 Yes

Commissions to insurance agents and sales persons 10 NoFees, emoluments, and other benefits to a resident director, manager, or board member of a body of persons

20 No

Commissions to lotto agents 10 NoSupply of goods exceeding GHS 2,000 3 NoSupply of works exceeding GHS 2,000 5 NoSupply of services exceeding GHS 2,000 (payments to persons other than individuals)

7.5 No

Payment to individuals for provision of services 7.5 NoLottery winnings exceeding GHS 2,592 5 NoPayment to petroleum subcontractors 7.5 NoPayment for unprocessed precious minerals 3 No

Non-resident persons:Dividend 8 YesRoyalties, natural resources payments, and rents 15 YesManagement, consulting, and technical service fees, and endorsement fees

20 Yes

Repatriated branch after tax profits 8 YesInterest income 8 Yes


Ghana

Income WHT rate (%) Final taxShort-term insurance premium 5 YesIncome from telecommunication, shipping, and air transport 15 YesPayment to petroleum subcontractors 15 Yes

Double tax treaties (DTTs)Ghana has DTTs with the following countries for the relief from double taxation on income arising in Ghana:

Recipient Dividends (%) (1) Interest (%) Royalties (%)

Technical or management

service fees (%)Belgium 5/15 10 10 10Denmark 5/15 8 8 8France 7.5/15 10 10 10Germany 5/15 10 8 8Italy 5/15 10 10 10The Netherlands 5/10 8 8 8South Africa 5/15 5/10 (2) 10 10Switzerland 5/15 10 8 8United Kingdom 7.5/15 12.5 12.5 10

Notes

1. The lower rate applies where the recipient holds at least 10% of the shares. The higher rate applies in any other case.

2. 5% for non-resident banks. 10% in any other case.

The government of Ghana is pursuing DTTs with various countries, including Sweden, Syria, the United Arab Emirates, and the United States. The parliament of Ghana is yet to approve the DTTs with the Czech Republic, Mauritius, and Singapore.

Tax administration

Taxable periodThe tax year runs from 1 January to 31 December. Corporations with financial periods other than the calendar year are taxed on their financial period ending during the calendar year.

Tax returnsCompanies are expected to submit a tax return not later than four months after the end of the financial year. They may file an application for extension of filing time for not more than two months.

Payment of taxCIT is due for payment at the same time as the due date for filing the return. The tax is payable in four equal instalments at the end of each quarter (i.e. March, June, September, and December) in each year of assessment, but such payments are not deemed to be the actual tax payable.


Ghana

At the end of the year, all taxpayers are required to file final tax returns and pay any tax outstanding. The final return and tax are due within four months after the financial year-end.

There are also instances where the CG may issue an additional assessment after conduct of an audit. Where such assessment is served, the tax is payable within 30 days after service of the notice. At the discretion of the CG, the time for payment may be extended.

PenaltiesWhere tax is not paid by the due date, a penalty is calculated at 125% of the statutory rate, compounded monthly, and applied to the amount outstanding at the start of the period.

Tax audit processThe GRA assesses taxpayers on a regular basis. The ITA gives powers to persons authorised by the CG to gain full and unlimited access to the taxpayers’ premises, records, and electronic information. Industries such as mining, upstream oil and gas, and financial institutions are more likely to be selected for a tax audit. Also, request for a tax refund is also likely to lead to a tax audit. The GRA usually gives notice of its intention to perform a tax audit and, after performance, prepares a report on its findings, which is then shared with the taxpayer.

Statute of limitationsThe ITA requires all taxable persons (excluding employees) to maintain records of all receipts and payments, revenue and expenditure, and all assets and liabilities of the business for a period of not less than six years. This is in conjunction with the fact that the Statute of Limitation bars actions to recover tax after 12 years.

Topics of focus for tax authoritiesTopics of focus for the tax authorities include:

• Tax refunds.• CST.• Transfer pricing sensitisation of taxpayers.• NFSL.

Other issues

Local Content and Local Participation RegulationsThe Minerals and Mining General Regulations 2012 (LI 2173) applicable to mining entities obligate mining contractors and subcontractors to conform to the requirements for recruitment of expatriates, train Ghanaians, and give preference to local products and services in their operations.

The Petroleum (Local Content and Local Participation) Regulations, 2013 (LI 2204) aim at providing a transparent monitoring system to meet the objectives of the government’s Local Content Policy. Further, the Regulations are expected to help facilitate job creation through the use of local expertise for goods and services, business, and financing in the petroleum industry value chain.


Ghana

Ring fencing for mining and petroleum entitiesIn determining the chargeable income for a basis period, mining companies are not able to deduct expenses incurred in one mining area against revenue from another mining area.

Similarly, companies engaged in petroleum operations are required to treat the activities of a petroleum right as an independent activity separately from other rights.

Ivory Coast (Côte d’Ivoire) 172www.pwc.com/taxsummaries

Ivory Coast (Côte d’Ivoire)

PwC contact

Dominique TatyPricewaterhouseCoopers Tax and Legal S.A.Immeuble Alpha 200020th FloorRue Gourgas - PlateauAbidjan 01Côte d’IvoireTel: +225 20 31 54 60Email: [email protected]


The FY17 Financial Law has enforced new tax rules related to the obligation for taxpayers from controlled groups to prepare and file transfer pricing documentation together with their financial statements to support their group transactions. Failing to file the documentation results in the expenses being disallowed.

From a compliance perspective, after the single tax return entered into force in 2016, online filing and payment of taxes is now effective.


Taxable corporate income in Côte d’Ivoire is based on worldwide income for resident companies (for exceptions, see Foreign income in the Income determination section).

Tax on industrial and commercial profits in Côte d’Ivoire is levied at 25%, subject to a minimum tax. The rate is 30% for companies in the telecommunication, information technology, and communication sectors.

Non-resident entities are subject to withholding tax (WHT) at 20%, subject to existing double tax treaties (DTTs), on their Côte d’Ivoire source income when they do not have a permanent establishment (PE). Non-residents with a PE are taxed in the same way as a resident.

Minimum taxThe minimum tax is based on total turnover and is calculated at the rate of 0.5% (0.15% for banking activities, 0.1% for oil companies), with a minimum tax of 3 million Communauté financière d’Afrique (Financial Community of Africa or CFA) francs (XOF) and a maximum tax of XOF 35 million.

Local income taxesThe income tax is levied at the national level. There is no local income tax.

Corporate residence

In Côte d’Ivoire, companies are considered resident in tax jurisdictions where they have a registered fixed establishment (e.g. subsidiaries, branches, representative offices).

PwC Worldwide Tax SummariesIvory Coast (Côte d’Ivoire)173


Permanent establishment (PE)A non-resident is considered as having a PE in Côte d’Ivoire when its activities involve a comprehensive commercial cycle in Côte d’Ivoire or when it operates through a dependent agent in Côte d’Ivoire.

According to DTTs, a non-resident is considered as having a PE in Côte d’Ivoire when it has a registered establishment, including a subsidiary, a branch, a representative office, a mine or an oil well, a building site, a manufacture plant, or a trading establishment. Sometimes, a time threshold of six months is considered.

Other taxes

Value-added tax (VAT)VAT is a non-cumulative tax levied on the sale of goods and services at the rate of 18%. Subject to certain restrictions, VAT is recoverable.

The rate is reduced to 9% for milk, pasta products that contain 100% durum wheat semolina, and equipment designed for the production of solar energy.

Customs dutiesCustoms duties rates range from 0% to 35%, depending on the classification of the imported goods according to the customs tariff.

Upon import, goods are also subject to the statistical duty (1%), to community levy (0.5%), and to VAT (18%).

Special taxes, depending on the nature of the imported goods, may apply, such as excise duties.

Statistical dutyThe statistical duty is levied together with the customs duties during the customs clearance procedures of imported goods.

The rate of the statistical duty is 1% on the cost, insurance, and freight (CIF) value of the imported goods.

Community levyThe community levy is due together with the customs duties during the customs clearance procedures of imported goods.

The rate of the Economic Community of West African States (ECOWAS) community levy is 0.5% on the CIF value of the imported goods.

Products imported from outside the West African Economic and Monetary Union (WAEMU) remain subject to the community levy at 1% for five years from January 2015.

The community levy does not apply to goods imported from member countries of the WAEMU, which includes Côte d’Ivoire, Senegal, Burkina Faso, Mali, Benin, Togo, Niger, and Bissau Guinea.



Excise dutiesExcise duties apply on cigarette imports, alcoholic or non-alcoholic beverages, and oil products.

Real estate taxA real estate tax is imposed at the following rates:

• 1.5% for undeveloped lands.• 4% on land revenue.• 11% on developed land or 15% when the built property is used by the company

itself. The rate is reduced to 4% for unoccupied buildings.

Transfer taxesIn the case of the transfer of property through a direct sale, taxes are assessed at the following rates:

• 10% for lease transfers.• 4% for the sale of real estate.• 10% for the sale of businesses.

For mortgages, the rate is 5% for the financial lessor at the acquisition of the good and 1% for acquisition of the immovable property by the lessee from the exercise of the option.

Stamp dutyA direct tax is paid for any document subject to a registration procedure, for an acknowledgement of a cash payment, and for bills of exchange.

Payroll taxesTaxes are levied at the rates of 2.8% for local employees and 12% for expatriate employees on the total taxable remuneration, including salaries, benefits, and benefits in kind.

Social security contributionsEmployers must contribute to the social security system (CNPS) at the following rates:

Contribution Contribution rate (%) Monthly ceiling (XOF)Family allowance 5.75 70,000Work injury 2.0 to 5.0 70,000Retirement pension 7.7 1,647,315

Note that even though the retirement contribution ceiling (XOF 1,647,315) is calculated on the basis of 45 times the minimum wage, this amount has not been updated since the minimum wage increased from XOF 36,607 to XOF 60,000.

Special tax for equipmentA special tax is paid by all taxpayers for the purpose of the equipment of the government. The tax is calculated on 0.1% of total turnover and is paid monthly. This tax is scheduled to end on 31 December 2019.



Business franchise taxThe business franchise tax includes a turnover tax and a proportional tax. The turnover tax is calculated on turnover at the rate of 0.5%, with a minimum tax of XOF 300,000 and a maximum tax of XOF 3 million. The proportional tax rate is 18.5% and is based on the rental value of the professional office location (based on general office rents).

Tax on banking operationsA cumulative tax of 10% is levied on bank services rendered. Tax on banking operations charged by banks to companies is fully deductible from output VAT.

Registration taxesRegistration of capital contributions is taxed, whether the capital contribution or increase in capital is made in cash or in kind. The rate is 0.3% for contributions exceeding XOF 10 million to XOF 5 billion and 0.1% for contributions over XOF 5 billion, with a minimum tax of XOF 18,000. Increases in capital by incorporation of reserves are taxed at 6%.

In the event of a capital increase through a merger, the increase in the share capital of the acquiring company is taxed at half of the rates above.

The transfer of shares held in a company located in Côte d’Ivoire is liable to a 1% registration duty on the sale price or market value of the shares when the transfer does not trigger the disappearance of the company or the creation a new legal entity.

Tax on insurance premiumsInsurance premiums are subject to tax as follows:

Policy type Tax rate (%)Marine policies 7.0Life policies Exempted when contract’s duration is more

than three yearsFire policies 25.0Health policies 8.0Export credit insurance 0.1Other (e.g. personal liability, transportation) 14.5

Premiums paid under commercial shipping insurance policies for maritime risks are exempt. The tax may be paid by the insurance company, its agent, or the subscriber in cases where the subscriber had to pay the premium to a foreign insurance company.

Tax on telecommunication companiesA specific tax of 5% is applicable on the turnover of mobile telecommunication, information technology, and communication companies.

Companies renting passive infrastructures and telecom towers to telecom companies are not within the scope of this tax.

Companies operating in the telecommunication, information technology, and communication sector must also invest 20% of the amount of dividends transferred abroad in bonds of the public Treasury or any borrowing instrument issued by the government of Côte d’Ivoire.



Tax on telecommunication servicesA special tax of 3% is applicable on telecommunication services provided to the public. The tax is invoiced and collected by companies operating mobile or land telecommunication and internet services in Côte d’Ivoire.

Branch income

The tax rate for branch income is the same as that for corporate income. After-tax branch earnings are subject to a 15% tax (Impôt sur le revenu des valeurs mobilières or IRVM) calculated on 50% of the taxable profit. This is analogous to the WHT on dividends.


Inventory valuationInventory is generally stated at the lower of cost or market value. Last in first out (LIFO) and first in first out (FIFO) methods are permitted. Book and tax conformity is required.

Capital gainsCapital gains are normally taxed at full corporate rates. However, the tax on capital gains, exclusive of recaptured depreciation, can be deferred if the gain is reinvested within three years.

Dividend incomeDividends are brought into taxable income at 50% of the net amount earned by the company (after 15% WHT).

The exemption is increased to 95% for dividends received from a subsidiary if a parent company domiciled in Côte d’Ivoire owns 10% of the subsidiary.

Stock dividendsStock dividends are unusual, but in the event they are declared, they are not taxable to the recipient.

Interest incomeInterest from loans is brought into taxable income at 50% of the net amount earned by the company (after 18% WHT).

Royalty incomeRoyalty income received by a local taxpayer is included in its annual revenue and subject to corporate income tax (CIT).

Royalty income paid by a local taxpayer to a non-resident is subject to a 20% WHT, subject to the existence of a DTT between Ivory Coast and the country of the effective recipient of the royalties.

Most DTTs will provide a reduced rate of 10% or 5% for WHT on royalties.

Royalties are defined by tax treaties.



In the absence of a DTT, the 20% WHT applies to all services payments to non-residents, including royalties.

Foreign incomeResident corporations are taxed on their worldwide income, except for profits derived from business conducted through a PE outside Côte d’Ivoire. Since income derived from business conducted outside Côte d’Ivoire is not taxable, no tax credit is allowed.

Interest and dividends from foreign sources are entitled to certain deductions to alleviate instances of double taxation. Subject to provisions of tax treaties, no deductions or tax credits are allowed for revenue from royalties and services.

Deductions

Depreciation and depletionDepreciation is generally computed on a straight-line basis over the useful life of the asset (e.g. 20 years for buildings, 3 years for automobiles). Accelerated depreciation is sometimes permitted for machinery. The following depreciation rates are generally accepted for tax purposes:

Assets Depreciation rate (%)Buildings 5Machinery, equipment (rate depending on equipment) 8/10/20Office furniture 10Office equipment 20Vehicles 33.3Computing equipment 20 to 50

A time coefficient is applied to the rate of depreciation to obtain the declining balance. Depreciation rates may be amended, but only after agreement with the tax authorities.

New plants and equipment may be depreciated at twice the normal rate in the first year of use, provided they are depreciated over at least six years. Under certain circumstances, buildings used for staff housing may be depreciated at 40% of cost in the first year. Annual depreciation must be booked to preserve tax deductibility. The whole or any part of the annual charge can then be deferred in annual accounts for fiscal years showing a tax loss. Recaptured depreciation is taxed at full rates. Tax and book conformity is obligatory.

Depletion allowances, as such, do not exist, but tax incentives are available for exploration to replace depleted natural reserves.

GoodwillGoodwill (capital gain) deriving from the transfer of assets is included in taxable profit. The gain may be exempt from the income tax basis if the taxpayer commits to reinvest the purchase price of the transferred assets plus the goodwill in the three following years.

If the reinvestment is not completed in the three years, the gain will be subject to income taxation.



Start-up expensesStart-up expenses (e.g. legal fees, registration duties on share capital subscription, the costs of any registration procedure, advertisement expenses) have to be amortised over a period from two to five years.

Interest expensesInterest paid to shareholders may be deducted. The maximum interest rate allowed is related to the Banque Central des Etats de l’Afrique de l’Ouest (BCEAO) rate plus three points. The reimbursement of the loan must take place in the five years following the loan.

Bad debtProvisions for bad debts are deductible, provided that a minimum set of collection procedures have been engaged.

Bad debts are deductible for income tax purposes unless the debt results from abnormal business decisions.

Charitable contributionsCharitable contributions to recognised sport and health associations are deductible.

Charitable contributions to individuals or non-recognised beneficiaries are not tax deductible.

Fines and penaltiesFines borne by corporations are not tax deductible.

TaxesRegular taxes paid by corporations are deductible for income tax purposes.

Third party taxes (such as WHT on non-resident service providers) borne by corporations are not tax deductible.

Other significant itemsIn respect to legal reserves, 10% of net profit must be transferred to a reserve for legal fees until the reserve equals 5% of the paid-up share capital.

To be tax deductible, provisions must relate to existing liability or loss. General reserves are not deductible.

Net operating lossesLosses may be carried forward for five years.

Losses derived from depreciation can be carried forward indefinitely.

Losses cannot be carried back.

Payments to foreign affiliatesReasonable royalties, interest, and management and service fees paid to foreign parent companies are tax deductible. However, the deductions should not exceed 5% of the turnover and 20% of the overhead. Otherwise, the portion exceeding the ceiling is not tax deductible. The onus is on the taxpayer to prove that expenses are justified and reflect real transactions.



Deduction of expenses from group transactions is subject to the filing of transfer pricing documentation.

Group taxation

Group taxation is not permitted in Côte d’Ivoire.

Transfer pricingProfits directly or indirectly transferred to related non-resident companies are disallowed from the income tax basis.

The tax administration may inquire on transfer pricing when local subsidiaries having most of their transactions with non-resident group companies record losses.

Transfer price documentation on group transactions must be filed together with annual financial statements.

Thin capitalisationThe deduction of the interest of loans granted on top of the share capital by related parties is subject to restrictions (see Interest expenses in the Deductions section).

When, because of losses, the equity of the company is less than 50% of the share capital, the company must be recapitalised in the two following years, unless the company is dissolved.

Controlled foreign companies (CFCs)There are no CFC rules in Côte d’Ivoire.


Foreign tax creditSince income derived from business conducted outside Côte d’Ivoire is not taxable, no tax credit is allowed.

Investment zonesThe aim of the Investment Code is to:

• help create companies in other regions than the economic capital city (Abidjan)• help the employment of nationals• help companies doing business in a sustainable manner• develop the regions of the country, and• favour the existence of local small and medium-sized enterprises (SME).

The Investment Code regimes involve the creation of three zones (A, B, and C), depending on the location of the company:

• Zone A covers Abidjan District.• Zone B covers any town in Côte d’Ivoire with more than 60,000 inhabitants.• Zone C covers any town in Côte d’Ivoire with less than 60,000 inhabitants.

The duration for the granted tax benefit is:



• 5 years for Zone A.• 8 years for Zone B.• 15 years for Zone C.

The Investment Code includes two specific tax incentive regimes: the Investment Declaration Regime and the Investment Approval Regime. Both regimes apply to all economic activities, excluding finance and banking, non-industrial buildings builders, and commerce activities. However, investment related to the creation or the development of important shopping centres could qualify for the exemptions if certain conditions are met.

The Investment Declaration Regime has no minimum investment threshold, but has special requirements related to the activities of the company.

For the Investment Approval Regime, the minimum investment cost is XOF 200 million (VAT and working capital exclusive).

The benefit from the Investment Code is granted by the Centre for the Promotion of Investments (named CEPICI), after an application is filed by the requestor.

During the investment period, the beneficiary enjoys the following:

• Reduction of 50% of the customs duties on the equipment and materials included on the filed list together with the first spare parts, when the investment is less than XOF 1 billion.

• Reduction of 40% of the customs duties on the equipment and materials included on the filed list together with the first spare parts, when the investment is more than XOF 1 billion.

• Exemption from VAT on purchase of equipment, materials, and first spare parts.

After the completion of the investment, the beneficiary enjoys the following exemptions during a period that depends on the zone the company is located in:

• Exemption from corporate income tax (CIT).• Exemption from business franchise tax.• Exemption from real estate tax (only for Zone C in the Investment Declaration

Regime).• Exemption from registration taxes on share increases (only for Zone C in the

Investment Declaration Regime).• Reduction of the payroll taxes due on employee’s wages. The reduction is 80% for

Zone B and 90% for Zone C in the Investment Declaration Regime and 50% for Zone A, 80% for Zone B, and 90% for Zone C in the Investment Approval Regime.

These incentives may not be combined with sector-specific investment programs, such as those for mining and hydrocarbons.

Capital investment incentivesWith prior approval of the tax authorities and varying with geographical location, 35% to 40% of the total investment in fixed assets related to commercial, industrial, or agricultural activity may be deducted from taxable income. The deduction is limited to 50% of taxable profits. The balance of deduction of the first year may be carried forward over the three following years.



Export incentivesNo VAT is levied on export sales.

Export incentives for the mining industryDuring the exploration phase, investments may be exempt from payroll tax; VAT on goods and services; additional tax (on the sale of goods) on imports and purchases; all import taxes and duties, including VAT on materials, machines, and equipment used in research activities; registration duties applicable to in-kind or cash share-capital contributions; real estate tax; CIT; and minimum tax.

In the exploration phase, mining subcontractors can benefit from the same import VAT and customs exemptions granted to mining title holders.

During the production phase, mining activities may have a five-year exemption from CIT and relief from all import duties, including VAT on recovered investments required for exploitation, special equipment tax, business franchise tax, etc. In addition, they may be granted temporary admission of machines and equipment that facilitate research and exploitation. Mining subcontractors are exempt from customs duties, including VAT on importing of liquid or gas fuels, lubricants, and chemical or organic products intended for the treatment of minerals, for the whole duration of the mine.

A tax on profit is levied as soon as investment funds are recovered. Mining enterprises may not combine these incentives with those of the Investment Code.

Export incentives for petroleum service contractorsA special and optional tax treatment applies to petroleum service contractors that meet established criteria. CIT, distribution (i.e. dividend) tax, payroll tax, income tax on salaries, and the tax on insurance premiums are calculated on the turnover of the contractor. The total taxes represent 5.786% of turnover. Standard rates apply for business franchise tax and social security contributions for local personnel. The exemption from customs duties and VAT for oil companies is extended to petroleum service contractors.

Withholding taxes

WHTs are levied as follows:

• Impôt sur le revenu des valeurs mobilières (IRVM): 15% on dividends and directors’ fees.

• Impôt sur le revenue des créances (IRC): 18% on interest payments, reduced to 13.5% (individuals) and 16.5% (businesses) on bank deposit interest. The revenue realised by individuals on Treasury Bonds is subject to 10% tax on terms of up to 12 months and to 5% tax when ranging from three years to five years. Foreign banks are subject to 18% tax on loan interest or 9% on equipment loans with minimum three-year terms.

• Impôt sur les benefices non commerciaux (BNC): 25% of 80% of revenues on royalties, licence fees, and management and service fees paid by Ivorian companies to foreign companies (effective rate: 20% of net amount paid). See Treaty rates below for reduced rates on royalties and management fees.

• Interest on certificates of deposit (bons de caisse): 25%.



WHT on public contracts for servicesAny payment made by government bodies or public institutions to non-resident persons or companies for a contract for goods or services is subject to a 20% WHT, subject to DTTs (see Impôt sur les benefices non commerciaux above).

Resident persons or companies are not subject to this WHT, except for individual service (or goods) providers registered under the standard tax regime for small companies (see below).

WHT on small-size businessesA 7.5% WHT is applicable on the remunerations paid to individual service providers registered under the standard tax regime for small companies.

A 10% WHT is applicable on payments made by government bodies or public institutions for a contract for services (or goods).

WHT on writers’ revenueA 7.5% WHT applies to occasional revenue paid to individuals or companies as royalties on books, scientific studies, and artistic productions.

Treaty ratesThe Ivorian DTT Network:

RecipientWHT (%)

Dividends Interest RoyaltiesBelgium 15 16 10Canada 15 15 10France 15 15 10Germany 15 15 10Italy 15 15 10Morocco 10 10 10Norway 15 16 10Portugal 10 10 5Switzerland 15 15 10United Kingdom (1) 15 15 10WAEMU (2) 10 15 15

Notes

1. Management fees (‘honoraires de gestion’) attract the 10% WHT in the United Kingdom (UK) DTT.2. The West African Economic and Monetary Union (WAEMU) states are: Benin, Burkina Faso, Côte

d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

Tax administration

Taxable periodCompanies are required by law to have a 31 December fiscal year-end.

Tax returnsFinancial statements are filed annually, according to local generally accepted accounting principles (GAAP). Taxpayers under the real taxation scheme (the normal real taxation scheme is for companies with a turnover above XOF 150 million, the simplified real taxation scheme is for companies with a turnover between XOF



50 million and XOF 150 million) are required to produce electronic and paper financial statements. The deadline for filing is 30 June for companies subject to audit requirements and 30 May for other entities.

Companies under the real taxation scheme are allowed to submit tax returns electronically and perform tax payments via wire transfer.

Payment of taxPayment of CIT is made in three instalments in April, June, and September following the end of the fiscal year, depending on the sector of activity and taxpayer’s office, as follows:

• Medium and large-size companies tax office:• 10 April, 10 June, and 10 September for industrial, oil and gas, and mining

companies.• 15 April, 15 June, and 15 September for commercial companies.• 20 April, 20 June, and 20 September for service providers.

• Companies with other tax offices:• 15 April, 15 June, and 15 September.

Tax audit processMany types of tax audits are available to the tax administration, which may request any accounting-related document for the purpose of tax audit.

The most common is the general tax audit of the taxpayer’s situation, which covers the statute of limitation period. It is carried out with a notice at least five days before the beginning of the audit. The audit is carried out on the premises of the taxpayer for a maximum of six months (with a possibility to extend for a period of three additional months), and a primary tax assessment is issued.

The taxpayer then has 30 days to agree or challenge the assessment, and the definitive assessment is issued within a maximum of three months following the primary tax assessment notification date.

The definitive tax assessment has to be issued within a maximum of two months for taxpayers with annual turnover up to XOF 500 million.

The tax administration is entitled to release tax assessments electronically.

Further challenge of the definitive assessment is possible before the head of the tax administration and the court.

Statute of limitationsThe statute of limitations covers the current year and the three prior years.

Topics of focus for tax authoritiesThe tax administration generally focuses on compliance with the CIT filing deadline and on the payment of the instalments.

For consistency of the tax returns, the tax administration focuses on the filing of the additional records (Annual Financial Statements, Etat 301: Annual Salary Statement, Etat 302: Annual Fees Statement), records of the provisions, tax losses, and amortisations carried forward.



During tax audits, the focus is on transactions with non-resident related parties.

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Kenya

PwC contact

Steve OkelloPricewaterhouseCoopersPwC TowerWaiyaki Way/Chiromo Road, WestlandsP.O.Box 4396300100 Nairobi, KenyaTel: +254 20 2855116Email: [email protected]


Miscellaneous Fees and Levies Act, 2016 (MFLA)The MFLA, which came into effect on 21 September 2016, provides a legal framework for charging export duty (various rates), import declaration fees (IDF) at 2%, and railway development levy (RDL) at 1.5%. These provisions were previously administered under the now repealed Customs and Excise Duty Act, Cap 472.

Tax amnesty on foreign incomeThe Finance Act, 2016 (which was assented to law on 13 September 2016) introduced a provision effective 1 January 2017 in the Tax Procedures Act (TPA) that will grant a tax amnesty to taxpayers who earn taxable income from foreign sources.

The Commissioner will refrain from assessing or recovering taxes, penalties, and interest in respect of any year of income ending on or before 31 December 2016 and from following up on the sources of income under the amnesty where:

• the income has been declared for the 2016 tax year by a person earning taxable income in Kenya, and

• the returns or accounts for the 2016 tax year are submitted on or before 30 June 2018.

The amnesty shall not apply:

• to income earned in Kenya where the person earning the income has already been assessed to tax in Kenya, and

• where a person making an application for the amnesty is under a tax audit or investigation by the Commissioner.

Under the Finance Bill, 2017 (issued on 3 April 2017), the amnesty deadline was extended from 31 December 2017 to 30 June 2018. Further, it has proposed an amendment such that for taxpayers to be eligible for the amnesty, declared funds will need to be transferred back to Kenya. We are currently awaiting confirmation on when the Finance Bill, 2017 will be enacted into Law, as the Finance Act, 2017.

Whilst the Kenya Revenue Authority (KRA) issued draft guidelines on 8 March 2017, these are still subject to finalisation. Several questions remain unanswered based on the current wording in the draft guidelines. The key contentious area therein is how will the government achieve its aim of encouraging taxpayers to repatriate the ‘funds’, in particular where foreign income is held in shares, trusts, or immovable property, since the definition of ‘funds’ remains unclear. Our view is that the proposed tax

PwC Worldwide Tax SummariesKenya186

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amnesty is likely to be a stepping stone towards the Common Reporting Standards (CRS), the global Organisation for Economic Co-operation and Development (OECD) initiative enhancing tax enforcement by encouraging taxpayers to become compliant with tax obligations in their home jurisdiction.

Proposed tax reformsThe government of Kenya’s strategy on tax and revenue reforms aims to significantly grow revenue in the 2017/18 fiscal year. To this end, several tax policies and revenue administration reforms have been put in place to enhance taxpayer education, make greater use of technology, and implement a simplified tax regime for the informal sector.

Specific changes introduced

Incentives for businesses operating in special economic zones (SEZs)The Finance Act, 2016 has harmonised the SEZ incentives with those available for the export processing zone (EPZ) companies.


Resident companies are taxable in Kenya on income accrued or derived from Kenya. Resident companies with business activities outside Kenya are also taxed on income derived from business activities outside of Kenya.

Non-resident companies are subject to Kenya corporate income tax (CIT) only on the trading profits attributable to a Kenyan permanent establishment (PE).

The rate of CIT for resident companies, including subsidiary companies of foreign parent companies, is 30%. The CIT rate for branches of foreign companies and PEs is 37.5%.

Special ratesThere are special rates for certain resident and non-resident companies as set out below.

Entity CIT rate (%)EPZ enterprises:

First ten years 0Next ten years 25Thereafter 30

Registered unit trusts/Collective investment schemes Exempt (subject to conditions)Newly publicly listed companies:

20% of shares listed: first three years after listing 2730% of shares listed: first five years after listing 2540% of shares listed: first five years after listing 20

Companies listed on securities exchange 25 (first five years)SEZ enterprises, developers, and operators 10 (first ten years)

15 (succeeding ten years)Rates on gross income of non-residents derived from Kenya:

Transmission of messages 5Ownership or operation of ships and aircraft 2.5


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Local income taxesThere are no county or provincial taxes on income, as all taxes are collected by the national government. However, county governments are empowered by the Constitution to impose property and entertainment taxes at the county level.

Corporate residence

Kenya-incorporated companies are treated as Kenyan-tax resident. Additionally, companies incorporated overseas are also treated as Kenya resident if their “management and control is exercised in Kenya in a particular year of income under consideration”. A company may also be declared a tax resident in Kenya pursuant to a declaration in a legal notice by the Cabinet Secretary for the National Treasury.

Permanent establishment (PE)A business carried on in Kenya through a fixed place of business gives rise to a PE, as does a building site, or a construction or assembly project, that has existed for six months or more.

The definition of a PE has been extended to include a dependent agent that habitually concludes contracts on behalf of others. This definition is closer to that contained in the OECD Model Convention on Double Tax Treaties (DTTs).

Note that the definition of a PE may be modified by a DTT.

Other taxes

Value-added tax (VAT)VAT is levied under the VAT Act, 2013. VAT is a tax on value addition and is accounted for using an input-output mechanism. There are four types of supplies that attract different VAT rates: 16% for taxable supplies, 0% for zero rated supplies, exempt supplies, and out of scope supplies.

VAT registration is required for persons making taxable supplies over KES 5 million in a 12-month period. In determining the threshold, it excludes the:

• sale of capital assets• sale of a person’s enterprise, or• cessation of business permanently.

A person making taxable supplies below the registration threshold may voluntarily apply to the Commissioner and register for VAT.

Input tax on a taxable supply or import may be deducted from the tax payable by a registered person on supplies made by one in a tax period to the extent that the supply or importation was acquired to make taxable supplies. Input tax is allowable for deduction within six months after the end of the tax period in which the supply or importation occurred.

Changes introduced by the Finance Bill, 2017Finance Bill, 2017 (the Bill) has effected numerous changes, focussing primarily on zero rating as the core VAT incentive and targeted at economically significant sectors


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of the economy, to assist with their development. The prominent VAT changes are outlined below:

• There is a shift from zero rating to exemption for the downstream oil and gas industry. The supply of liquefied petroleum gas (LPG) is now exempt from VAT (previously, LPG was subject to VAT at zero rate). It is likely that the hidden costs associated with exemptions will be pushed to the consumer, making the product much more costly.

• In a bid to stimulate local manufacturers and the agricultural sector, the Bill has exempted inputs for the manufacture of pesticides. This exemption will allow local manufacturers to be more competitive and also promote the agricultural sector by reducing the cost of production.

• The Bill has exempted from VAT the supply of locally assembled tourist vehicles. This is a positive move towards promoting local assemblers as well as the tourism sector.

• The Bill has exempted from VAT asset transfers and other transactions related to the transfer of assets into Real Estates Investment Trusts (REITs) and Asset Backed Securities (ABSs). This exemption will reduce the overall cost of setting up REITs and ABSs.

• VAT exemption for Sharia compliant finance products. The Bill seeks to harmonise the VAT incentives offered across the financial services industry by providing for similar VAT treatment of Islamic finance products as with conventional finance products.

• The Bill has zero rated taxable goods supplied to marine fisheries and fish processors. This is aimed at reviving the fisheries sector and ensuring increased utilisation of marine resources as part of the economic growth agenda.

Value Added Tax Regulations, 2017The Value Added Tax Regulations, 2017 (the Regulations) have been published by the Cabinet Secretary for the National Treasury more than three years since the enactment of the Value Added Tax Act, 2013 (VAT Act) in September 2013. Taxpayers have been relying on outdated Value Added Tax Regulations, 1994. The Regulations, which took effect from 4 April 2017, are subsidiary legislation meant to facilitate the efficient implementation of the principal legislation, the VAT Act.

The most notable amendment in the Regulations are procedures relating to the exportation of goods and services. Regulation 13 stipulates that:

• Goods are exported from Kenya when they are entered for export under the EAC Customs Management Act and delivered to a recipient outside Kenya.

• Services are exported from Kenya if they are provided to a recipient outside Kenya for use, consumption, or enjoyment outside Kenya; however, export of services does not include the following:• Taxable services consumed on exportation of goods unless the services are in

relation to transportation of goods that terminates outside Kenya.• Taxable services provided in Kenya but paid for by a person who is not a resident

in Kenya.

The documentation required as a proof of exportation of goods and services include:

• A copy of the invoice to the recipient.• Proof of payment.• For goods, a bill of lading, road manifest or airway bill, the export or transfer entry

certified at the port of exit.


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• For excisable goods, documents as per the Excise Duty Act, 2015.• For services, other documents to prove that services were consumed outside Kenya.

Where the Commissioner has reasonable grounds to believe that the goods were not exported, the Commissioner may require evidence from a competent authority outside Kenya confirming that the goods were duly landed and entered for home consumption at a place outside Kenya.

The VAT Act defines services exported outside Kenya to be services provided for use or consumption outside Kenya.

While Regulation 13 requires an invoice showing the recipient of services to be a person outside Kenya as proof of exportation of services, the Regulation, on the other hand, excludes from the scope of exported services those services paid for by ‘a person who is not resident in Kenya’.

The Regulation has not addressed the issue of how to determine the place of use, consumption, or enjoyment; the Regulation has rather introduced location of recipient of the services and the location from where payment for services is made as additional tests for determination of export of service. This appears to be a shift from the ‘destination principle’ enshrined in the VAT Act.

Import (customs) dutyImport duty is levied under the East African Community (EAC) Customs Management Act. Imported goods are generally subject to import duty at varied rates, including 0% for raw materials and capital goods (also exempt from VAT), 10% for intermediate goods, and 25% for finished goods. However, a different rate of duty can be prescribed by the Council of Ministers of the EAC partner states. Enterprises established in an EPZ are exempt from customs duty on machinery and inputs for products manufactured for export while licensed oil and gas contractors with a Production Sharing Contract (PSC) with the government of Kenya are exempt from customs duty on importation of machinery, spares, and inputs used in exploration activities, excluding motor vehicles.

In addition, enterprises that are established under the SEZs enjoy import duty exemption. Where raw materials that are not subject to 0% import duty are used to manufacture goods for use locally within the EAC and for export outside the EAC, one may apply for remission under the EAC duty remission scheme. This is subject to a requirement for proof of export and one may be required to execute a bond/bank guarantee. Further, assemblers of motor vehicles and motor cycles, among others, enjoy import duty remission under the scheme.

Additionally, there is a list of other items and persons that are exempted from import duties under the Act.

Changes introduced by the EAC Gazette NoticesThe most current EAC Gazette Notice that introduced budgetary changes for all EAC partner states brought with it a number of changes, including an increase in the import duty rates for worn clothing and other worn articles (0.20 United States dollars [USD]/kg to USD 0.40/kg), milk cans (increased the import duty rate from 10% to 25%), and products of iron or steel (introduced a specific duty rate of USD 200/metric ton [MT], so that the applicable rate is 25% or USD 200/MT, whichever is higher) among others. Such changes are in line with other indirect tax changes aimed at incentivising key sectors of the economy.


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The Gazette also granted full remission of duties to inputs used in the manufacture of matches and match boxes, nylon yarns for manufacture of fishing nets, inputs for manufacture of batteries, inputs for manufacture of agricultural equipment, and inputs for manufacture of solar equipment. Kenya has also granted a stay of application of the CIT rate on garments and leather footwear manufactured in the EPZ on 20% of the annual production allowed in the EAC Customs Union Protocol to be sold within the country for one year.

The Gazette also introduced exemptions from import duty on refrigeration equipment for dead bodies for use in hospitals, city council, or funeral homes. The Council, however, removed spare parts for specialised solar and wind energy equipment, agricultural equipment, and uniforms for use by hospital staff from the exemption schedule.

It is expected that the EAC Gazette Notice to be published in June 2017 shall introduce further changes to the Customs duty regime. In addition, the EAC Common External Tariff (CET) is undergoing a comprehensive review, and the new EAC CET is expected to be released before December 2017 in line with the release of the amended 2017 CET by the World Customs Organization (WCO) earlier this year.

Excise dutyExcise duty is imposed on the local manufacture or the importation of certain commodities and services. Excisable commodities include items such as bottled water, soft drinks, cigarettes, alcohol, fuels, and motor vehicles. Excisable services include mobile cellular phone services, fees charged for money transfer services, and other fees charged by financial institutions.

Below are the different categories of excisable products and their corresponding rates of excise duty. These include the changes introduced by the Finance Bill, 2017.

Category Goods description Excise duty ratesSpirits Spirits of undenatured ethyl alcohol; spirits

liqueurs, and other spirituous beverages of alcoholic strength exceeding 10%

KES 200 per litre

Other alcoholic beverages

Wines KES 150 per litreBeer, cider, perry, mead, opaque beer, and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of alcoholic strength not exceeding 10%

KES 100 per litre

Powdered beer KES 100 per kg

Tobacco and tobacco products

Cigarettes with filters (hinge lid and soft cap) KES 2,500 per milleCigarettes without filters (plain cigarettes) KES 1,800 per milleCigars, cheroots, cigarillos, containing tobacco or tobacco substitutes

KES 10,000 per kg

Electronic cigarettes KES 3,000 per unitCartridge for use in electronic cigarettes KES 2,000 per unitOther manufactured tobacco and manufactured tobacco substitutes; homogeneous and reconstituted tobacco; tobacco extracts and essences

KES 7,000 per kg

Soft drinksFruit juices and vegetable juices KES 10 per litreWater and other non-alcoholic beverages, not including fruit or vegetable juices

KES 5 per litre


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Category Goods description Excise duty rates

Other excisable products

Plastic shopping bags KES 120 per kgFood supplements 10%Motor vehicles of tariff heading 87.02, 87.03, and 87.04

20%

Motor cycles of tariff heading 87.11 (excluding motor cycle ambulances and locally assembled motor cycles)

KES 10,000 per unit

Excisable services

Mobile cellular phone services and other wireless telephone services

10%

Money transfer services 10%Financial services by financial institutions 10%

Finance Bill, 2017 provisionsThe Cabinet Secretary has published the Finance Bill, 2017 (the Bill). While the publication of the Finance Act, 2017 may or may not introduce further changes in the administration of the Act, the provisions of the Bill continue to apply until the Finance Act comes into force in the course of the year.

In addition to the changes already mentioned above, the Bill has exempted excisable goods purchased locally and excisable goods supplied to St. John Ambulance for official use in the provision of relief supplies in Kenya. This is in addition to the goods already exempted under Part A of the Second Schedule to the Excise Duty Act, 2015.

Excise Duty RegulationsThe Cabinet Secretary for the National Treasury also published regulations for the administration of the provisions of the Excise Duty Act, 2015. The introduction of The Excise Duty (Remission of Excise Duty) Regulations, 2017 has revoked the Customs and Excise (Remission of Excise Duty) Regulations, 2013. These Regulations empower the Cabinet Secretary to grant remission of excise duty with respect to beer made from sorghum, millet, or cassava, or any other agricultural produce grown in Kenya. The remission granted is 80% of the excise duty due and does not apply in respect of beer made from barley.

In addition, the coming into force of The Excise Duty (Excisable Goods Management System) Regulations, 2017, which has also revoked the Customs and Excise (Excisable Goods Management System) Regulations, 2013, requires all classes of excisable goods to be affixed with excise stamps, with the exception of motor vehicles. These regulations specify different stamp prices for different classes of excisable goods ranging from KES 0.6 to KES 2.8 per stamp.

Further, these regulations prescribe a robust system that addresses the loopholes in the entire supply chain from production of excisable goods to retail; including a requirement for retailers of excisable goods to ensure compliance with excise stamp requirements before they stock these products in their premises. These measures are likely to boost revenues for the exchequer while at the same time creating an even ground for the manufacturers and importers of excisable goods by reducing incidences of non-complying excisable goods.

Stamp dutyStamp duty is payable on transfer of properties, leases, and securities. For other properties, other rates of stamp duty apply as specified in the Schedule to the Stamp Duty Act. The rates of stamp duty are shown below:


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Activity Stamp duty rateTransfer of immovable property:

Urban 4%Rural 2%

Creation or increase of share capital 1%Registration of a company (nominal share capital) 0%Transfer of unquoted shares or marketable securities 1%Transfer of quoted shares of marketable securities 0% *Registration of a debenture or mortgage:

Collateral security 0.05%Supplemental security KES 20 per counter part

Lease:Period of three years and under 1% of annual rentPeriod over three years 2% of annual rent

* Transfer of quoted securities is exempt.

Tax on capital gains (CGT)After being suspended for 30 years, the Finance Act, 2014 reintroduced CGT on transfer of property situated in Kenya. Therefore, gains derived on the sale or transfer of property by an individual or company carried out on or after 1 January 2015 are subject to a final tax at the rate of 5%. The definition of ‘property’ is widely drawn and includes securities in Kenyan resident private companies (though a specific exemption from CGT exists for securities listed in Kenya).

The High Court recently ruled that Paragraph 11A of the Eighth Schedule of the Income Tax Act cannot impose an obligation on a taxpayer to pay CGT on or before presenting a transfer instrument for registration as opposed to upon registration of the transfer instrument. The KRA has appealed the Court’s ruling, but no final decision is available at this date.

Compensating taxWhere a company pays dividends out of profits that have not been subject to CIT, the company will be liable to pay a compensating tax. The compensating tax rate is 42.8%. The aim of this tax is to ensure that all dividends are paid out of profits that have suffered CIT.

Turnover tax for small business taxpayersA resident taxpayer whose annual gross turnover does not exceed KES 5 million will be taxed at the rate of 3% per quarter of one’s turnover. In such a case, the taxpayer will not be required to register for VAT. Turnover tax does not apply to rental income, management or professional fees, training fees, income subject to withholding tax (WHT) as a final tax, and income of incorporated companies. Loss making businesses are allowed to make an election to be exempted from turnover tax. A written application for exemption has to be made to the Commissioner, and there is a procedure to be followed.

Payroll taxesPayroll taxes are administered through the pay-as-you-earn (PAYE) mechanism of deducting income tax from employment income (salaries, wages, bonuses, commissions, etc.). PAYE also applies to taxable non-cash benefits.


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It is the employers’ obligation to deduct and account for payroll taxes on a monthly basis.

The tax tables applicable to individuals are provided in the Taxes on personal income section of Kenya’s Individual tax summary at www.pwc.com/taxsummaries.

Employers’ National Social Security Fund (NSSF) contributionsEmployers and employees are obligated to contribute monthly to the NSSF a standard contribution of KES 200 each. However, the new NSSF Act provides for a higher contribution rate of 6% of pensionable earnings with matching contribution from the employer. The implementation of the new Act awaits conclusion of a pending court case.

National Hospital Insurance Fund (NHIF) contributionsAn employer has an obligation to deduct and remit NHIF contributions on a monthly basis.

NHIF is payable by the employee at graduated bands, up to a maximum of KES 1,700 per month. The maximum contribution is reached at a salary level of KES 100,000 per month.

Business permitEvery person who carries on a business in Kenya is required to apply for a business permit from the relevant local authority. The business permit is usually based on the size of one’s business and is renewable on an annual basis.

Tourism levyThe tourism levy is payable to the Tourism Fund by establishments dealing in tourism activities and services as listed in the Tourism Act at a rate of 2% of turnover.

National industrial training levyAll employers are required to pay to the Directorate of Industrial Training a monthly levy of KES 50 per employee. The only exemption is for employers remitting the tourism levy.

Railway development levy (RDL)The RDL is payable on all imports into the country at 1.5% of the customs value of the goods. This was implemented to provide funds for the construction of a standard gauge railway track.

National construction levyThe National Construction Authority introduced a construction levy for all construction works that commenced after 6 June 2014. The levy is payable at the rate of up to 0.5% of the contract value of any construction project whose construction value exceeds KES 5 million. The levy is in relation to all construction projects relating to buildings, roads, water works, electrical works, and other works that require the service of a contractor.

Advance tax on motor vehiclesAdvance tax is payable at varying annual rates depending on the motor vehicles and is creditable against any CIT payable for the year.


Kenya

Fringe benefit tax (FBT)The FBT is payable by an employer on interest-free or low-interest loans granted to employees, company directors, and their relatives. FBT is due, whether the employer is exempted from tax or not, at the resident CIT rate of 30%. The benefit is the difference between actual interest charged and the interest computed using the Commissioner’s prescribed rate published quarterly. The directors and employees are not personally taxed on the benefit.

Betting, lottery, and gaming taxesThe Finance Bill, 2017 has increased the amount of betting, lottery, and gaming taxes with effect from 1 January 2018 as follows:

Tax type Current rate/Tax base New rate/Tax baseBetting tax 7.5% of gaming revenue 50% of gaming revenueLottery tax 5% of lottery turn-over 50% of lottery turn-overGaming tax 12% of gaming revenue 50% of gaming revenuePrize competition tax 15% of total gross turnover 50% of total gross turn over

Local government rent and ratesRent and rates are levied annually on properties in Kenya, and the rateable value that is payable to the county government shall vary in each county based on various forms of ratings, such as area rate, agricultural rental value, or site value.

Branch income

The profit of a PE is taxed at the branch income tax rate of 37.5%, but there is no further taxation on the distribution of branch profits. There are certain restrictions with respect to the tax deductibility of certain costs, such as royalties, interest, and management fees, paid to the head office. However, these payments are also not subject to WHT.


Inventory valuationInventory is stated at the lower of cost or net realisable value, with the exception of biological assets, whose value is prescribed by the Commissioner.

Capital gainsTax on capital gains (CGT) has been reintroduced. See Tax on capital gains (CGT) in the Other taxes section for more information.

Dividend incomeKenya-source dividends are taxable income in Kenya unless the recipient is a Kenya resident company holding 12.5% or more of voting power of the company paying the dividend. However, for companies holding less than 12.5% of the votes, and other resident taxpayers, the 5% WHT is the final tax. Dividends paid to non-residents and any overseas holding company attract 10% WHT.


Kenya

Dividends issued in a ratio not proportionate to shareholding of the existing equity are considered as taxable dividends to the extent of the disproportionate increase in the value of the ownership of the company.

Interest incomeInterest income is generally included in the determination of taxable income unless expressly exempted for income tax.

Royalty incomeRoyalty income is subject to CIT at 30%. Given that royalties attract WHT, the WHT credit can be used to offset against the tax liability arising from the royalty income.

Foreign incomeIn Kenya, companies are taxed on income accrued or derived from Kenya. Resident companies with business activities outside Kenya are taxed on worldwide profits.

Deductions

The general principle in Kenya is that, unless expressly provided otherwise, expenses are tax deductible if they are incurred wholly and exclusively to generate taxable income.

Depreciation and depletionNo deduction is allowed for accounting depreciation or impairment. However, capital allowances are permitted at varying rates (on a straight-line basis) for certain assets used for business purposes, including buildings and machinery used in manufacturing, industrial buildings and hotels, machinery and plant, agricultural works, and mining.

Capital deductions Rate (%)Investment deduction:

Qualifying investment exceeding KES 200 million (outside Nairobi or the municipalities of Mombasa or Kisumu)

150

Other qualifying investment 100Industrial building allowance: *

Certified education buildings (straight-line) 50Qualifying rental residential or commercial building allowance (straight-line)

25

Other qualifying buildings (including hotels, straight-line) 1Wear and tear allowance:

Plant and machinery (reducing-balance): Class 1 37.5 Class 2 30 Class 3 25 Class 4 12.5Telecommunication equipment (straight-line) 20

Other allowances:Computer software (straight-line) 20Capital expenditure under a concessionaire arrangement Equal proportions over the

period of the concessionMining specified minerals: Year one 40 Year two through seven 10


Kenya

Capital deductions Rate (%)Farm works (straight-line) 100

* Different percentages apply for previous years.

GoodwillCost acquisition of goodwill and amortisation of goodwill are not deductible since they are capital in nature.

Start-up expensesThere is a specific provision allowing the deduction of certain start-up expenses, provided that the required conditions have been met.

Interest expensesA deduction for interest is allowed only to the extent that the borrowings are used for the purpose of trade. Where a non-resident person controls a company alone or with four or fewer other persons, interest restriction or ‘thin capitalisation’ rules apply (see Thin capitalisation in the Group taxation section).

Bad debtsBad debts are deductible in the year in which it is evident that the debt has become irrecoverable. Detailed rules apply for making this determination.

Charitable contributionsDonations to qualifying charities and for certain public works are deductible, subject to certain conditions.

With effect from 3 April 2017, the Finance Bill, 2017 provides that expenditure incurred by a taxpayer on donations for the alleviation of distress during national disaster as declared by the President will be deductible expenses for the taxpayer when determining taxable income. Deductible donations will be those made to:

• the Kenya Red Cross• county governments, or• any other institution responsible for the management of national disasters to

alleviate the effects of a national disaster declared by the President.

Fines and penaltiesGenerally, fines and penalties are not deductible as they are not considered to be expenses incurred for producing profits chargeable to tax.

TaxesKenyan income taxes are not deductible while computing income tax of a person. However, foreign income taxes incurred are generally deductible as an expense if tax credit relief is not available under a DTT.

Net operating lossesLosses calculated under the tax rules may be carried forward against income from the same source for a maximum of ten years, including the year in which the losses arise. Losses cannot be carried back, except for petroleum companies, where losses can be carried back indefinitely.


Kenya

Payments to foreign affiliatesTransfer pricing rules based on OECD principles apply to transactions with foreign affiliates (both companies and branches/PEs). Additionally, there are restrictions on the deductibility of expenses incurred outside of Kenya by non-residents with a Kenyan PE.

Group taxation

Each company in a group is taxed as a separate entity in Kenya.

Transfer pricingA company that has related-party transactions is required to ensure such transactions are at arm’s length. The company is therefore required to prepare a transfer pricing policy to justify the pricing arrangements. The Commissioner is allowed to specify conditions and procedures on the application of the methods for determining the arm’s-length price and to adjust the prices if they do not conform to the arm’s-length principle. The policy should be prepared and submitted to the KRA upon request.

Thin capitalisationIn Kenya, a company is thinly capitalised if all of the following occur:

• The company is controlled by a non-resident person alone or together with four or fewer persons.

• The company is not a bank or financial institution.• The highest amount of all loans held by the company at any time exceeds the sum of

three times the revenue reserves (including accumulated losses) and the issued and paid up share capital of all classes of shares of the company.

A company that is thinly capitalised cannot claim a deduction on the interest expense incurred by the company on loans in excess of three times the sum of revenue reserves and issued and paid up capital of all classes of shares of the company. The company also cannot claim a deduction for any foreign exchange loss realised by the company with respect to any loans from its shareholders in the period that the company remains thinly capitalised.

For companies in the extractive sector, the debt-to-equity ratio is 2:1.

Deemed interestThe Kenyan tax legislation gives the Commissioner for Domestic Taxes the discretion to ‘deem interest’ on interest-free borrowings received by foreign-controlled entities in Kenya. The ‘deemed interest’ is based on the Commissioner’s prescribed rates.

This means that WHT is due on the ‘deemed interest’ as if this was an actual finance charge. The WHT rate on payments of interest to non-residents is currently 15% (in the absence of a DTT).

Controlled foreign companies (CFCs)Kenya has no specialised rules regarding CFCs.

However, there are restrictions on the deductibility of interest and foreign exchange losses of companies that are foreign controlled and thinly capitalised.


Kenya


Foreign tax creditFor business income, there is no tax credit for foreign tax paid on business income except as provided for by a DTT (if applicable) between Kenya and the other country. However, foreign tax paid can be deducted as an expense.

Investment deductionQualifying investments exceeding KES 200 million incurred outside Nairobi or the municipalities of Mombasa or Kisumu are allowed an investment deduction of 150%. All other qualifying investments are allowed a 100% investment deduction in the year the asset is put into use.

Export processing zone (EPZ)Companies located in an approved EPZ, principally to export goods, are taxed at a 0% CIT rate for ten years from its commencement and at a rate of 25% for the next ten years.

Special economic zones (SEZs)Companies registered under the SEZ Act benefit from a reduced CIT rate of 10% in their first ten years of operation. The CIT rate in the succeeding ten years is then 15%.

The Finance Bill, 2017 has introduced the following additional tax incentives to SEZ enterprises, developers, and operators with effect from 1 January 2018:

• Dividends payable to non-residents by SEZ enterprises, developers, and operators are exempt from WHT.

• Management fees, professional fees, training fees, and royalties payable by SEZ enterprises, developers, and operators to a non-resident person shall be subject to WHT at the rate of 5% (down from 20%).

• Interest payments payable by SEZ enterprises, developers, and operators to a non-resident person shall be subject to WHT at the rate of 5% (down from 15%).

• 100% investment deduction allowance for capital expenditure on buildings and machinery by an SEZ enterprise.

• Supply of taxable goods and services to SEZ enterprises, developers, and operators licensed under the SEZ Act, 2015 are VAT exempt.

It should be noted that the 100% investment deduction is granted to the SEZ enterprise and not the SEZ developer who may have incurred considerable costs in putting up the buildings in the SEZ site.

The reduced CIT rate (of 10% for the first ten years of operation and 15% for the next ten years) for SEZ enterprises, developers, and operators has also been clarified to be applicable whether the SEZ enterprise sells its products to markets within or outside Kenya.

The Miscellaneous Fees and Levies Act, 2016 has also been amended to provide that export levy on the goods listed in the Schedule to that Act shall not apply to exports to SEZs. Goods destined for SEZs shall also be exempt from payment of IDF.


Kenya

Listed companiesCompanies listed on the Nairobi Securities Exchange are entitled to reduced rates of income tax for a period depending on the percentage of share capital listed (see the Taxes on corporate income section for the rates).

Withholding taxes

WHT is levied at varying rates (3% to 30%) on a range of payments to residents and non-residents. Resident WHT is either a final tax or creditable against CIT. Non-resident WHT is a final tax.

PaymentsResident WHT rate

(%)Non-resident WHT rate

(%)Dividend > 12.5% voting power Exempt 10Dividend < 12.5% voting power 5 10Interest:

Bearer instruments 25 25Government bearer bonds (maturity ≥ 2 years) 15 15Bearer bonds (maturity ≥ 10 years) 10 N/AOther 15 15

Qualifying interest:Housing bonds 10 N/ABearer instruments 20 N/AOther 15 N/A

Royalty 5 20Winnings from gaming and betting (1) Varied VariedManagement or professional fees 5 20Consultancy fees - Citizen of EAC member states 5 15Training (including incidental costs) 5 20Rent/leasing:

Immovable property N/A 30Others (other than immovable) N/A 15

Pension/retirement annuity Varied (2) 5Contractual fees 3 20Sale of property or shares in oil, mining, or mineral prospecting companies

10 20

Notes

1. The taxation of the betting, lottery, and gaming sector has undergone significant change in Finance Bill, 2017. See the Other taxes section.

2. This will vary depending on the payments paid out.

Oil and gas sector WHT ratesWHT rates applicable on payments to non-residents in the oil and gas sector are shown in the table below:

Payments Non-resident (oil and gas) WHT rate (%)Dividends 10Interest 15Natural resource income 20Management or professional fees 12.5


Kenya

Double tax treaties (DTTs)Lower rates may apply to non-residents where there is a DTT in force. The table below shows the maximum rates of tax that recipients in those countries with a DTT with Kenya can be charged on dividends, interest, royalties, and management and professional fees. The table only includes agreements that are currently in force.

Recipient

WHT (%)

Dividends InterestRoyalties and management/

professional feesCanada 15 15 15Denmark 20 20 (1) 20France 10 12 10 (5)Germany 15 15 (1) 15India 15 15 20 (4)Norway 15 20 (1) 20South Africa 10 10 10 (5)Sweden 15 15 20United Kingdom 15 15 (1) 15 (2)Zambia 0 (3) 0 (3) 0 (3, 5)

Notes

1. Interest paid by the government and the Central Bank of Kenya is tax-exempt.2. The rate is 12.5% for management and professional fees.3. No Kenya tax is due if subject to tax in Zambia.4. The rate is 17.5% for management and professional fees.5. Management and professional fees subject to normal WHT rates.

Where the treaty rate is higher than the non-treaty rate, the lower rate applies.

Treaties awaiting conclusion and/or ratification: Iran, Italy, Kuwait, Malaysia, Mauritius, Netherlands, Qatar, Seychelles, Singapore, Thailand, and the United Arab Emirates.

The Kenya-South Korea DTT is now in force but will be coming into effect on 1 January 2018.

Tax administration

Taxable periodA company has discretion to determine its financial year-end, provided it is a 12-month period. However, any changes in this must be approved by the Commissioner of the KRA.

Tax returnsResident companies and PEs of non-resident companies must file a self-assessment tax return annually. The return is accompanied by a tax computation and financial statements, amongst other schedules. The return is due within six months following a company’s financial year-end.

Payment of taxInstalment tax payments must be made quarterly during the year based on the lower of 110% of the previous year’s liability or an estimate of the current year’s liability.


Kenya

Agricultural companies are required to pay estimated tax in two instalments of 75% and 25% during the year. Any balance of tax at the end of the year must be paid within four months of the financial year-end.

Payment of agency taxesThe tax withheld from payments must be paid by the 20th day of the month following the month in which the deduction is made.

Penalties for non-complianceIf a self-assessment tax return is not submitted by the due date, a penalty of 5% on the unpaid tax for the year may be imposed, subject to a minimum of KES 10,000. Failure or late submission of an EPZ company return will be subject to a penalty of KES 2,000 per day for as long as the failure continues.

A penalty of 20% and interest at 1% per month are imposed on underestimation and late payment of instalment tax and any balance of tax. Interest is charged only on the principal tax due, capped at the amount of the principal tax due.

Failure to make a deduction or to remit the WHT deducted attracts a penalty equal to 10% of the amount of tax involved (subject to a maximum of KES 1 million) and accrues interest at 1% per month.

Tax Procedures Act (TPA)The TPA, which came into force on 19 January 2016, aims to provide uniform procedures for consistency and efficiency in the administration of tax laws, facilitate tax compliance by taxpayers, and promote the effective and efficient collection of tax.

The TPA also harmonises and consolidates tax procedural rules. For example, the TPA provides that a taxpayer should keep records for five years. Previously, the different tax laws, such as the VAT Act 2013, Income Tax Act, and Excise Act, prescribed different timeframes that records should be kept by a taxpayer. Given that it is a relatively new piece of tax legislation, there are some inconsistencies when you mirror the TPA and other tax legislation, though we expect these inconsistencies to be addressed with time.

The Tax Appeal Tribunal Act, 2013The Tax Appeal Tribunal Act, which came into operation on 1 April 2015, establishes one tribunal that will hear appeals for all tax areas. Previously, income tax matters would be heard by the Local Committee whereas VAT matters would be heard by the Tax Tribunal.

Tax audit processThere is no prescribed audit process, as an audit can be triggered by various factors as determined by the KRA. Generally, tax audits should be carried out after every two to four years. The audit or inspection will commence with a request from the KRA for the taxpayer to make available any such records or information as may be required.

Statute of limitationsThe tax authorities must commence an audit before the expiry of seven years after the end of a year of income. The KRA may go back past seven years where fraud is suspected. There is no time limit for completing tax audits. However, they are normally completed within a reasonable time, especially if there are no major disputes.


Kenya

Topics of focus for tax authoritiesThe KRA, in their 2015/16 to 2017/18 Strategic Plan, stated that they will focus on the following key areas:

• Enhancing revenue mobilisation by broadening the revenue base, enhancing compliance, and combating tax evasion and fraud using intelligence and risk-based, forward-looking enforcement.

• Strengthening revenue administrative capacity and enhancing transparency and fairness through organisational change and business process optimisation.

• Creating a staff establishment that is professional courteous, accessible, and proactive in solving customer problem.

• Enabling business by leveraging on technology to achieve full electronic customer service and enhance operational efficiency and electronic customer service and enhance operational efficiency and service delivery in line with the best practice to achieve high customer satisfaction level.

Madagascar 203www.pwc.com/taxsummaries

Madagascar

PwC contact

Andriamisa RavelomananaPricewaterhouseCoopers Tax&LegalRue Rajakoba Augustin,Ankadivato,Antananarivo 101MadagascarTel: +261 20 22 217 63Email: [email protected]


Para-fiscal taxesLocal taxes, usually called ‘para-fiscal taxes’, are introduced in the tax code. These local taxes are not new since they already existed; however, their introduction into the tax code results from the principle that only a financial act can introduce tax.

Deductible social expenses for mining companiesDonations and expenses related to the social responsibility of mining companies are deductible if they are mandatory or provided in the Cahier des charges.

Expenditures for site security and HIMO, provided that expenses were subject to IRI, are also deductible.

Tax audit processThere has been restructuring of the process in case of tax dispute after a tax audit. A taxpayer can now ask for the opinion of the Commission de Recours Fiscal before entering into dispute procedure with the tax authority.


Taxation of residentsResident corporate entities are subject to corporate income tax (CIT) based on realised worldwide income.

A corporate entity having an annual turnover of less than 20 million Malagasy ariary (MGA) is subject to CIT at a rate of 5% of 70% of turnover, with a minimum tax of MGA 16,000.

A corporate entity registered in Madagascar and having an annual turnover exceeding MGA 20 million is subject to CIT at a rate of 20%.

The tax payable cannot be less than 5/1,000 of turnover plus a fixed amount of MGA 100,000 for taxable persons carrying on agricultural, artisan, transportation, industrial, hotel, or mining activities. The minimum tax cannot be less than 5/1,000 of turnover plus MGA 320,000 for other activities.

Taxation of non-residentsOnly Madagascar-source income is taxable for non-residents.

PwC Worldwide Tax SummariesMadagascar204

Madagascar

Revenue of foreign businesses providing services to a Madagascar taxpayer that do not have a permanent establishment (PE) in Madagascar is subject to withholding tax (WHT) at a rate of 10% of any income realised in Madagascar. However, dividend income is exempt and financial loan interest is subject to WHT of 20%. See the Withholding taxes section for more information.

Local income taxesNo regional or local income taxes are applicable in Madagascar.

Corporate residence

Companies are considered resident in Madagascar if they are registered in Madagascar or have a legal existence in Madagascar.

Permanent establishment (PE)PE refers to a fixed place of business through which a company carries out the whole or part of its activities, including:

• Management offices.• Branches.• Offices.• Factories.• Workshops.• Mining sites, oil or gas wells, quarries, or any other places for the extraction of

natural resources.• Building sites, construction or installation projects, or supervising activities lasting

for more than six months in relation to those projects.• Provision of services by a company, including advisory services, via employees or

other staff hired by the company to this end, only if such activities are carried out in Madagascar for a total period of 183 days for a 12-month period either starting or ending during the fiscal year involved, for the given or a related project.

PE does not include:

• The use of facilities for the storage or display of goods or merchandise belonging to the company.

• Exploiting a stock of goods or merchandise belonging to the company for the sole purpose of either storage or display or of being processed by another company.

• Exploiting a fixed place of business for the sole purpose of:• either purchasing merchandise or collecting information for the company• carrying out any other activity of preparatory or auxiliary character for the

company, or• pursuing any combination of the activities mentioned above, conditional on the

overall activity of the fixed place of business, as resulting from this combination, remaining of preparatory or auxiliary character.

Other taxes

Value-added tax (VAT)The VAT rate is 20%, and the VAT rate on export is 0%. VAT input is recoverable under certain conditions.


Madagascar

VAT is applicable to all transactions realised in Madagascar by a VAT vendor. Services are considered to be performed in Madagascar if such services are used in Madagascar or invoiced to a taxpayer established in Madagascar.

Business engaged in e-commerce is subject to VAT.

Transport companies are allowed to claim VAT input on gasoline used for land transportation. The objective is to reduce the impact of cost of oil and gas on transportation fees.

Any corporate entity or individual person who realises an annual turnover exceeding MGA 200 million is a VAT vendor. For a business realising annual revenue less than MGA 200 million, VAT vendor registration is an option.

A foreign company that has no PE in Madagascar but renders services to a Madagascar taxpayer must appoint a tax representative to collect and pay VAT on its behalf. Otherwise, the beneficiary of the services must collect and pay VAT on behalf of the foreign supplier.

All transactions made by a VAT vendor with a non-VAT vendor must be done via the banking system when the value of the transaction exceeds a threshold fixed by Decree.

Any suppliers not registered as VAT vendors engaged in public market transactions are subject to VAT at a rate of 8%, which is representative of income tax. VAT is withheld by the public treasury and paid directly to the tax authorities.

Customs and import taxThe importation of goods is subject to payment of customs and import tax payable to the customs office.

In addition, Gasynet fee, corresponding to 0.5% of the cost, insurance, and freight (CIF) value of goods, is applicable on importation of goods.

Excise dutyExcise duty applies on a range of goods and services, such as tobacco, alcohol, lighters, and communication by mobile phones. Excise duty rates range from 10% to 325% or are a fixed amount per litre or per unit.

Real estate ownership taxReal estate ownership tax is imposed annually at the rate of 5% to 10% on the rental value of the property. Land ownership is also taxable at a rate depending on the nature of the land.

Registration feesRegistration fees are applicable to transfers of title ownership (e.g. sales, donations) of movable and immovable assets, to transfers of interests, to share capital increases, and to lease agreements.

Registration fee rates are 0.5% to 5%, depending on the nature of the transaction. The rate of 5% is applicable mainly on transfers of assets and transfers of business.


Madagascar

Payroll taxSalary income taxes, called Impôt sur les Revenus Salariaux et Assimilés (IRSA), are levied at a rate of 20% on the total taxable remuneration of employees, including salaries, allowances, and benefits in kind. Employers are responsible for withholding and paying salary income taxes on behalf of employees.

Social security contributionsEmployers must contribute to Caisse Nationale de Prévoyance Sociale, Madagascar’s national social security fund, which includes pensions and accident insurance. The contribution is capped at 13% of eight times the legal minimum salary per employee.

Health contributionsEmployers must contribute to the health system assessment at a rate of 5% of the total amount of taxable remuneration of its employees. The contribution may or may not be capped at 5% of eight times the legal minimum salary per employee, depending on the health system organisation where the company is affiliated.

Tax on insurance contractsAll insurance or life annuity conventions concluded with a company, insurance firm, or with any other Madagascan or other insurer are subject to an annual tax on insurance contracts at a rate of 3% to 20% levied on the insurance premiums.

Para-fiscal taxesConcerning local tax, generally called ‘para-fiscal taxes’, the following are introduced in the tax code applicable from January 2017. These local taxes are not new since they already existed; however, their introduction to the tax code results from the principle that only a financial act can introduce tax. The following are the maximum rates/amounts:

• Civil protection tax: MGA 5,000 per domestic animal or white weapon.• Residence tax for development: MGA 5,000.• Tourist tax (or stay tax): MGA 500 to MGA 2,000 per night/room.• Tax on mineral waters: MGA 5 per litre.• Advertising tax: MGA 30 to MGA 30,000 per square metre• Tax on water and/or electricity: 10%.• Tax on entering parties, shows, and various events: 3% to 5%.• Tax on pylons, antennas, relays, or masts: MGA 600,000.• Tax on radio and television games: MGA 10/sms; MGA 20/call.

Branch income

The tax on branch income is the same as for corporate income. The branch income tax base is the income realised by the branch in Madagascar.


Inventory valuationThere are no provisions for valuing inventories or determining inventory flows in Madagascar. The tax treatment will follow the accounting treatment.


Madagascar

Capital gainsCapital gains realised from the sale of shares held in a company of which the entire or partial value is derived, either directly or indirectly, from goods located in Madagascar, or from rights thereof, are subject to income tax at a rate of 20%.

Capital gains made by a company on the sale of assets and interests are considered as normal business income that is subject to CIT.

Dividend incomeDividends received by a company are considered as business income subject to CIT.

Certain dividends from a subsidiary may be excluded from CIT (see Dividends exclusion in the Group taxation section).

Stock dividendsStock dividends are unusual, but they are considered as business income that is subject to CIT.

Interest incomeInterest income received by a resident taxpayer from another entity established in Madagascar is subject to WHT at a rate of 20%. Revenue already subject to WHT is no longer taxable to CIT.

Royalty incomeRoyalty income received by a resident taxpayer is considered as normal business income subject to CIT.

Foreign incomeForeign income earned by corporate bodies situated in Madagascar is considered as normal business income subject to CIT unless a tax treaty is established and indicates otherwise. There is no provision for tax deferral in Madagascar.

Deductions

DepreciationThe amount of deductible depreciation should not exceed the amount that is calculated according to the following rates of depreciation provided by the law:

Asset Depreciation rate (%)Industrial buildings 5Plant and machinery 10Mining exploration and development (licence) 33Transportation (car) 20Transportation (utility cars, vans, trucks) 25Computers 25Electricity generators 10

With the exception of buildings, it is also possible to practise a graduated depreciation. In this case, the annual depreciation corresponds to 30% of the net book value of the asset.


Madagascar

In case of loss, depreciation of assets can be deferred and carried forward to the next financial years until absorption.

GoodwillThere is no provision concerning deductibility of goodwill in the Madagascar tax code.

Start-up expensesThere is no specific tax provision on start-up expenses. Accounting rules are applicable for the profit and loss recognition.

Start-up and prospecting expenses for the installation of an overseas establishment, as well as the costs of running such a foreign establishment, for the first three years are tax deductible. However, the amounts deducted must be reported, in equal amounts, to the taxable income of the five consecutive years from the fifth year following the creation of the foreign establishment.

Interest expensesInterest expenses are deductible. However, interests on inter-company loans are subject to thin capitalisation rules (see Thin capitalisation in the Group taxation section for more information). In addition, interest on inter-company loans is not deductible if the loan agreement is not documented by a written agreement submitted according to registration procedures.

Bad debtTo be tax-deductible, provisions for doubtful debt must be subject to justification of existence of amicable or judicial settlement.

Charitable contributionsPayments made for the benefit of educational, social, or cultural recognised public associations; accredited bodies for scientific research; or for the promotion and creation of businesses for achievement of planned economic and social development are deductible within the limits of 0.5% of annual turnover.

Gifts in kind or in cash granted in case of natural calamities and donations in cash granted to a corporation established by decree for the interest of the nation are also deductible.

Any other charitable contributions are not deductible.

Deductible social expenses for mining companiesDonations and expenses related to the social responsibility of mining companies are deductible if they are mandatory or provided in the Cahier des charges.

Expenditures for site security and HIMO, provided that expenses were subject to IRI, are also deductible.

Deductible wagesSalaries and wages that are not included in salary income taxes or not declared to Caisse Nationale de Prévoyance Sociale are not deductible.

Fines and penaltiesFines and penalties are not deductible for CIT purposes.


Madagascar

TaxesExcept for CIT, taxes in relation to business in Madagascar are deductible.

Third-party taxes borne by the company are not tax-deductible.

Net operating lossesAccumulated loss can be carried forward for the next five financial years following the period in which the loss occurs. Carryback of losses is not permitted in Madagascar.

Payments to foreign affiliatesFor branches, the deductible amount of overhead that the head office can charge to the branch is limited to 1% of the turnover of the branch.

For interest on inter-company loans, see Thin capitalisation in the Group taxation section.

Payments to foreign companies established in a country having a very favourable fiscal regimePayments made to a foreign company established in a country having a very favourable fiscal regime are not tax deductible unless there is proof of effectiveness of the services and reasonability of the amount.

Group taxation

There is no provision regarding group taxation in Madagascar, except for the following:

For entities subject to the actual tax regime, a parent-subsidiary regime option is established by which the net dividends received by the parent company from its subsidiary are excluded from the tax base of the parent company. However, a share of fees and expenses, uniformly fixed at 5% of the amount of dividends paid, must be reintroduced into the tax base.

Transfer pricingThere is a provision in the tax law allowing the tax authority to claim a tax adjustment in cases where the transactions between a Madagascar entity and a foreign entity controlling or controlled by the Madagascar entity are not concluded at fair market value.

The following transfer pricing methodologies are acceptable:

• Methods of comparable prices on the free market.• Resale price method.• Cost plus method.• Transactional method on net margin.• Transactional method on profit split.

Effectiveness of services and fair market value must be justified by appropriate documentation.

Thin capitalisationUnder Malagasy tax law, deductible inter-company financial interest cannot exceed the interest calculated on twice the share capital at the rate of the Central Bank of Madagascar plus two points (the rate of the Central Bank of Madagascar is 9.5%).


Madagascar

Inter-company loan agreements must be submitted according to registration formalities within two months from the execution date. Failure of submission of an inter-company loan agreement according to registration formalities implies non-deductibility of interest on the inter-company loan.

Dividends exclusionDividends received by a shareholder holding more than 75% share capital from its subsidiary are excluded from business revenue subject to income tax.

Controlled foreign companies (CFCs)There is no special provision in relation to CFCs in Madagascar.


The following activities benefit from a special tax and/or customs regime:

Microfinance activityMicrofinance benefits are available for entities specialising in lending money on the basis of small or medium scale value. Entities duly licensed to practise microfinance activities are exempt from CIT during the first five years. After this period, the microfinance company is subject to CIT at a rate of 20%.

Free zone (free trade zone)Free zone law is available for industrial and other service providers that export all of their products. If eligible under the free zone law, a CIT exemption is provided during the first two to five years and a reduced CIT of 10% is levied thereafter. Exemption from customs duties on importation is also provided.

Companies investing in renewable energy, tourism, industrial, civil work and construction, and transformationCompanies investing in renewable energy, tourism, industrial, civil work and construction, and transformation can benefit from a tax reduction equal to the tax calculated on 50% of the amount of investment that they realised during the related tax year. The right to reduction that can be used for the tax year cannot exceed 50% of tax actually due. The balance is carried forward with the same limitation to subsequent years, until clearance.

Big investment miningA mining company committing to invest more than 50 million United States dollars (USD) is considered a big investment mining company. The big investment mining law provides a minimum income tax exemption, a reduced CIT rate for the transformation entity (i.e. the entity in charge of processing the extracted minerals), exemption from custom and importation duties, and VAT reimbursement on locally purchased equipment and investments.

Petroleum codeThe petroleum code provides a custom and importation duties exemption for hydrocarbon research, exploration, and exploitation activities.

Leasing lawThe leasing law provides that leasing activities can benefit from CIT exemption and reduction of tax rate during the first four years.


Madagascar

Foreign tax creditExcept under a tax treaty, there is no foreign tax credit rule under Malagasy tax law.

Withholding taxes

WHTs are levied as follows:

• Purchases of goods and services from non-registered suppliers by a registered supplier are subject to WHT at a rate of 5% payable to the tax authorities within 15 days following the month of payment of the supplier.

• Impôt sur les revenus des capitaux mobiliers (IRCM): WHT on interest of 20% is applicable on financial loan interest. However, interest paid to banks, financial institutions, and foreign financial organisations is exempt.

• WHT of 20% is applicable on remuneration of a member of a board of directors or a single director.

• Income tax for non-resident entity: Management fees, royalties, technical and assistance fees, licence fees, equipment rental fees, and any income realised by foreign suppliers is subject to WHT at a rate of 10%.

Madagascar has signed two tax treaties.

Recipient Dividends (%) Loan interest (%)Royalties, management fees,

services fees (%)Non-treaty 0 20 10Treaty:France 25 (max) 15 15 (max)Mauritius 10 (max) 10 5 (max)

Tax administration

Taxable periodThe financial year may be spread over any period of 12 months. There is no need to obtain prior authorisation in order to close the financial year on a date other than 31 December or 30 June.

Tax returnsCIT returns are due before 15 May each year for companies whose financial year ends at 31 December, before 15 November each year for companies whose financial year ends at 30 June, and no later than the 15th day of the fourth month from the date of closing of the financial year for all other year-ends.

Payment of taxCIT is payable bimonthly in provisional instalments. The balance is payable before 15 May each year for companies whose financial year ends at 31 December, before 15 November each year for companies whose financial year ends at 30 June, and within four months from the date of closing of the financial year for all other year-ends.

Taxpayers can decide to suspend the payment of bimonthly income tax instalments, but they must pay a penalty of 80% if the final tax due is more than the previous year’s income tax.


Madagascar

WHT on foreign services is payable to the tax authorities within one month of the date of payment.

WHT on interest and on payments to members of boards of directors are payable before 15 May each year for companies whose financial year ends at 31 December, before 15 November each year for companies whose financial year ends at 30 June, and no later than the 15th day of the fourth month from the date of closing of the financial year for all other year-ends.

Tax audit processThe tax authority carries out audits of a selection of tax returns, usually at the taxpayer’s place of business. Audits may be carried out at any time prior to the expiration of the statute of limitations.

During tax audit, tax authorities can access all the taxpayer data available on servers, terminals, and any supporting systems.

After examination of available information, the tax authority issues a primary notice, and the taxpayer has 30 days after the date of reception of the primary notice to answer and submit its written objection to the tax authority.

The tax authority then issues the notice of assessment. 15 days from the notice of assessment, the taxpayer may request the opinion of the Tax Administrative Appeal Commission (CFRA). After obtaining the CFRA’s opinion, the tax authority issues the final notification accompanied with the perception title.

30 days from the final notification, the taxpayer can file a claim to the Director of Tax. The decision of that body may be further appealed to the Court (State Council) within 30 days.

Statute of limitationsThe tax limitation period is three years.

Topics of focus for tax authoritiesAreas where tax authorities usually claim adjustment are:

• VAT reverse on foreign services.• Completeness of VAT output on revenue.• Sales without invoices.• Expenses without invoices.• Employees’ remuneration not subject to salary tax.• Payment to non-registered suppliers.

Malawi 213www.pwc.com/taxsummaries

Malawi

PwC contact

Vyamala MoyoPricewaterhouseCoopersTop Floor, Hannover HouseCorner Independence Drive and Hannover StreetBlantyre, MalawiTel: +265 1 82 0322Email: [email protected]


Effective 1 July 2016:

• Definitions for derivative transactions, mineral royalty, mining project, independent personal services, professional services, management fees, mining permit, and royalty have been provided.

• The definition of person has been updated to include a joint venture in mining projects.

• Mineral royalty has been included as a tax deductible expense.• Taxation of a mineral project has been provided for.• Mineral royalty has been included as a tax, and method for its determination has

been provided.• Withholding tax (WHT) on income due to a non-resident but sourced from

Malawi and derived from a mining project by way of interest, royalty, payment for independent personal services, or dividend is 10% and 15% for all other income.

• Penalties and fines for concluding transactions that are subject to a tax clearance certificate without any.

• The deductible expenses relating to any debt in a mining project to be restricted to a maximum debt-to-equity ratio of 3:1 for the first five years and thereafter 1.5:1.

• Investment, export, and transport allowances are not applicable to mining projects.


Malawi does not have separate legislation for the determination of taxable income of different types of legal persons. Taxation of all income is included in the Taxation Act.

Section 11 of the Taxation Act defines income as the total amount in cash or otherwise, including any capital gain, received by or accrued to a person in any year or period of assessment from a source within or deemed to be within Malawi. The taxpayer’s assessable income excludes any amount exempt from tax under this Act.

Income deemed to arise in MalawiThe liability for Malawi tax is based on whether the income is sourced from Malawi, irrespective of the residence of the recipient of such income. Certain transactions may be deemed to be from a source within Malawi even if carried out outside Malawi. Section 27 of the Taxation Act limits the income that may be deemed to have arisen in Malawi to the following:

• Remuneration for services rendered or work performed in Malawi.

PwC Worldwide Tax SummariesMalawi214

Malawi

• Remuneration for services rendered or work performed in or out of Malawi where the amount may be claimed as a tax-deductible expense by a permanent establishment (PE) in Malawi.

• Amounts incurred, claimed, or claimable in connection with a PE in Malawi.• Realised exchange gains and losses arising in connection with a PE in Malawi or

foreign exchange assets and liabilities held in Malawi.• Capital gains and losses realised with respect to tangible property located in Malawi

and interests in companies incorporated in Malawi.• Interest not charged on a loan by a lender to another person is deemed to be income

accruing to the lender.

Summary of tax rates

Entity Income tax rate (%)Locally incorporated companies (1) 30Branches of companies not incorporated in Malawi 35Companies in Export Processing Zones 30Companies in priority industries (2):

For a period not exceeding ten years 0In all other cases for companies incorporated in Malawi 15In all other cases for Malawi branches of external companies 20

Notes

1. In the case of a mining company, an additional resource rent tax of 10% is levied on profits after tax if the company’s rate of return exceeds 20%. The basis for calculating rate of return has not been defined.

2. Agricultural produce processing and power generation are designated as priority industries.

Non-resident taxNon-resident tax is payable on income sourced from Malawi at the rate of 15% of the gross income and 10% for income derived from a mining project by way of interest, royalty, payment for independent personal services, or dividend.

Any income payable to a person who is not resident in Malawi (i.e. who has not been in Malawi for an aggregate period of 183 days) arising from a source within Malawi is liable to a final WHT of 15% of the gross of such income. Non-resident tax is applicable where the recipient of the income does not have a PE in Malawi from which the income emanated.

Non-resident tax may not be withheld on income of residents of countries that have a standing double tax agreement (DTA) with Malawi, subject to the provisions of the specific DTAs. For details of applicable WHT rates, see the Withholding taxes section. Currently, the following countries have a DTA with Malawi: Denmark, France, Norway, South Africa, Sweden, Switzerland, and the United Kingdom.

Local income taxesThere are no local income taxes in Malawi.

Corporate residence

A corporate entity is considered a resident for tax purposes in Malawi if it has a PE in Malawi.


Malawi

Permanent establishment (PE)The Taxation Act defines a PE as ‘an office or other fixed place of business through which business activity is carried on’. This short definition is wide in scope. Care must be exercised when considering this definition in situations that may be affected by a DTA. Each DTA contains a specific and far more detailed definition of what constitutes a PE.

Other taxes

Value-added tax (VAT)VAT is applicable on taxable goods and services. There are three classes of supplies for VAT: taxable supplies (at the rate of 16.5%), zero-rated supplies, and exempt supplies.

A taxable person can claim input VAT on inputs used in making taxable supplies.

A taxable person should complete VAT returns and make VAT payment, where applicable, on a monthly basis within 25 days after the end of the month.

Zero-rated supplies include exercise books, fertilisers, motor vehicles for the transport of goods, and salt.

The following supplies are tax exempt: machinery and financial services.

Customs dutiesCustoms duty is applicable on goods imported into Malawi. The basis for calculating duty is cost, insurance, and freight (CIF). There are three types of import duties: customs duty, import excise, and import VAT. The rate of custom duty varies from product to product.

The following are the customs and excise measures that are effective in Malawi:

• Returning residents will have to clear, duty free, a motor vehicle owned for more than 12 months under CPC 430.

• Duty free on importation of diagnostic and laboratory reagent under CPC 405 by Health Institutions.

• Removal of VAT on imported goods on water supply.• Removal of duty on imported electronic fiscal devices.• Removal of taxes applicable on large buses with seating capacity of more than 45

passengers (including the driver).• Reintroduction of the Industrial Rebate System. This is a major relief to the

manufacturing sector; however, given the abuse of the scheme in the past and the Minister’s intimation, it will be subject to serious monitoring by the Malawi Revenue Authority (MRA). Taxpayers will be required to register with the MRA.

• Other measures are in alignment with the Common Market for Eastern and South Africa (COMESA) and South African Development Community (SADC) tariff structures.

Excise dutiesDomestic excise is chargeable on certain goods manufactured in Malawi and on certain services, such as alcoholic drinks, tobacco, and cell phone airtime. The rate of excise varies depending on the goods and services.


Malawi

Tobacco levyBuyers of tobacco must pay a levy of 0.2% for every kilogram of tobacco bought.

Property taxesThere are no property taxes in Malawi.

Transfer taxesThere are no transfer taxes in Malawi.

Stamp dutiesStamp duties apply on certain documentation.

Turnover taxTurnover tax is applicable for businesses with a turnover between 2 million Malawian kwachas (MWK) and MWK 6 million. The turnover tax rate is 2% of turnover.

Resource rent tax for minersMiners pay resource rent tax of 10% on after-tax profits if the rate of return exceeds 20%. Since introduction of this tax, there has not been clear administrative guidance on its applicability, like a formula for the determination of the tax.

Payroll taxesUnder pay-as-you-earn (PAYE) regulations, the employer is required to withhold tax from employees’ salaries and remit to the tax authority on their behalf. There are penalties for non-compliance with the regulatory requirements.

Social security contributionsUnder the National Pension Scheme (NPS), an employee contributes a minimum of 5% of the pensionable emoluments while the employer contributes at least 10% of the employee’s pensionable emoluments. Contributions by the employer are tax deductible up to a maximum of 15% of the employee’s pensionable emoluments while those made by the employee are not.

Fringe benefits tax (FBT)A fringe benefit is defined as any asset, service, or other benefit in kind provided by or on behalf of an employer to an employee if such benefit includes an element of personal benefit to the employee. The employer providing such benefits is liable for payment of FBT. FBT is charged at the rate of 30% of the taxable figure.

Take note that a benefit need not be wholly for personal use in order to be considered for FBT.

Note as well that no benefit in cash, no matter what it is termed as, can be treated as a fringe benefit. All monies paid in cash (rather than in kind) should be considered for PAYE deduction.

However, subsistence allowances, given to employees working out of their duty station for instance, presumably to cater wholly, exclusively, and necessarily for their needs, such as accommodation, meals, transport, etc., ought not be taxed. This applies also for reimbursement of expenses incurred in business.

Every employer shall register for FBT within the month in which one begins to provide fringe benefits.


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The sums due as FBT shall be remitted to the MRA in quarterly instalments not later than 14 days after the end of each quarter of a period of 12 months ending 30 June, and remittance should be accompanied with a duly completed FBT return in Form FBT 2.

Note that the value for FBT should not be included in the employee’s certificate of gross emoluments.

Assessment of housing fringe benefitsThe taxable value of a housing fringe benefit is the greatest of (i) 10% of salary where the house is unfurnished, (ii) 12% of salary if furnished, or (iii) the rental value.

Where the house occupied by the employee is owned by the employer, the taxable value is reduced by 50%.

Motor vehiclesFBT is applicable on motor vehicles allocated for use by members of staff and does not include pool cars or cars that are strictly commercial in nature.

The taxable value is 15% of the original cost of the vehicle.

School fees (for children/dependants)50% of the cost to the employer for school fees is a taxable benefit, where payment is made directly to the educational institution. Education allowances payable to employees are not subject to FBT as the allowance is considered part of normal salary and taxable as such.

Utilities, household items, vacations, travel, and domestic servicesThe taxable value of utilities (e.g. electricity, water, and telephone expenses), household items, vacations, travel, and domestic services (e.g. gardener, cook, house boy, guard, nanny) is the entire cost to the employer. Except that for a house owned by the employer, the cost of a gardener, security guard, and watchman shall not constitute a taxable benefit.

Interest-free loans and loans given at interest lower than the commercial rateWhere an employer gives a loan to an employee that is interest-free or bears interest that is lower than the predetermined commercial rate, the difference between the interest offered and the commercial rate is a taxable benefit.

Branch income

There is a 35% tax on taxable income of a branch of a foreign company.

No dividend WHT is applicable on repatriation of profits.


Inventory valuationInventory is stated at cost or net realisable value (i.e. market price) for tax purposes. There is no specific requirement for the valuation of cost. The only legal emphasis is consistency in the application of the selected method. This means that one cannot change from one valuation method to another over different tax periods.


Malawi

Capital gainsThe tax basis for capital gains is the cost of the asset adjusted by the applicable consumer price index (inflation index). Once determined, the taxable gain is subject to corporate tax at the rate applicable to the particular entity.

Capital gains arising from the disposal of personal and domestic assets not used in connection with trade are exempt from corporate tax.

Capital gains arising from the sale of shares held for more than one year traded on the Malawi Stock Exchange are not taxable.

Rollover reliefIf a business asset is sold and the taxpayer acquires a qualifying replacement asset, the taxpayer may claim rollover relief. This means that the taxpayer does not immediately pay the tax on the gain. Instead, the cost of the replacement asset is reduced by the amount of the gain. The taxpayer must declare this in the tax return.

A qualifying replacement asset is an asset similar to, or related in service or use to, the asset disposed of. The replacement asset must be acquired within 18 months of the disposal giving rise to the gain.

Dividend incomeDividend income is exempt from corporate tax; however, dividends received from Malawi sources are subject to a 10% dividend WHT, which is a final tax. Note that although the word ‘final’ has not been defined, it is applied as meaning that dividend WHT suffered may not be offset against an income tax liability.

Interest incomeInterest is added to the other income categories and taxed at a rate applicable to the person that earns the income. There is a mandatory WHT on interest earned from financial institutions unless the earner is exempted.

There is deemed interest on any interest-free loans and balances. The deemed interest is taxable income to the lender.

Royalty incomeExcept for mineral royalties, royalty income is added to other income and taxed at a rate applicable to the person that earns it. Royalties earned from a mining project are taxable at 10% where the recipient in a non-resident.

Foreign exchange gains and lossesForeign exchange gains realised on foreign currency assets or liabilities are taxable.

Foreign exchange losses realised on foreign currency assets or liabilities are tax deductible.

Unrealised gains and losses are carried forward until realised and then included in income or allowable expenditures. The maintenance of records that accurately track unrealised exchange rate adjustments from year to year is necessary to ensure correct tax computations.

Tax-exempt incomeThe following are common examples of other tax-exempt income:


Malawi

• The income of agricultural, mining, and commercial institutions or societies not operating for private pecuniary profit or gain of the members.

• The income of clubs, societies, and associations formed, organised, and operated solely or principally for social welfare or civic improvement or other similar purpose, provided that the income of such bodies may not be divided among or used for the benefit of the members or shareholders.

• The income of ecclesiastical, charitable, and educational institutions of a public character.

Foreign incomeGenerally, income whose source is not Malawi is not taxable in Malawi.

Deductions

Taxable income is calculated by deducting allowable items from assessable income. Section 28 of the Taxation Act defines tax-allowable deductions as any expenditures and losses (not being of a capital nature) wholly, exclusively, and necessarily incurred by the taxpayer for the purpose of trade or in the production of income.

Capital allowancesCapital allowances (i.e. depreciation allowances) are applicable as stipulated in the Taxation Act at various rates.

Capital allowances, which are available to companies and individuals in business, are allowed as follows:

AssetAllowances (%)

Initial Investment AnnualIndustrial and farm buildings, hotels, and docks (1, 2, 3) 10 40/100 5Staff housing (3) 10 - 5Plant, machinery, and equipment (1, 2, 3, 4) 20 40/100 10/20Furniture and fittings (3) 20 - 10Motor vehicles (3, 4, 5, 6) 20 - 20Commercial buildings (7) - - 2.5Computers 20 - 40

Notes

1. The 100% investment allowance is available only on new and unused qualifying assets, as indicated above, belonging to and used by a manufacturer or farmer. The rate for used qualifying assets is 40%. The investment allowance is claimable only in the first year of use.

2. Where an investment allowance is claimed, the initial allowance is not allowed to be claimed on the same asset. The initial allowance is claimable only in the first year of use.

3. Annual allowances at the above rates are based on cost less investment and initial and annual allowances previously granted.

4. Investment allowance on plant and machinery excludes motor vehicles intended or adapted for use on roads.

5. A 20% annual allowance is standard, but the Commissioner General may vary the amount.6. No initial allowance is granted on private motor vehicles. These include saloons, sedans, station

wagons, and double cabin pickups. However, the restriction does not apply where the motor vehicle is used for hiring purposes.

7. The building must be newly constructed at a cost of no less than MWK 100 million.

On disposal, assets are subject to balancing charges (capital gains) or balancing allowances.


Malawi

If an asset is subject to extensive use, such as machinery working double shifts, so that its expected economic life is reduced, the Commissioner General may agree to increase the rates of annual allowances.

Lease, patent, trademark, and copyright premiumThe tax-deductible amount of a premium paid for the right of use or occupation of land or buildings, plant or machinery, patent design, trademark, copyright, or any other property of a similar nature is one of the following:

• The amount of premium or consideration divided by the number of years for which the right of occupation or use is granted.

• Where the period for which the right of occupation or use is granted exceeds 25 years, the deduction is one-twenty-fifth of the premium or consideration.

The premium is tax deductible only where the asset or right with respect to which the premium or consideration is paid is used for the generation of income. If a taxpayer acquires ownership of the asset or right, no further deduction of the premium or consideration is allowed from the date ownership is acquired.

GoodwillThe legislation does not prescribe treatment for goodwill. It has been the practice that goodwill is not deductible for tax purposes.

Pre-operating expendituresA manufacturer may claim as a deduction any expenditure incurred in the course of establishing the business, provided that the following are true:

• The expenditure was incurred not more than 18 months before commencing business.

• The expenditure would have been allowed as a deduction if it had been incurred after commencing business.

Interest expensesInterest that arises out of financing operations is allowable, while interest due to late payment of a debt is not allowable.

Bad debtSpecific bad debts are tax deductible and taxable in the following year. Bad debts written off are allowable and taxable upon eventual recovery.

Charitable contributionsDonations to approved charities and approved non-profit institutions formed for the purpose of social welfare, civic improvement, educational development, or other similar purposes are deductible. The minimum individual donation allowable is MWK 500. The minimum donation for other approved charities is MWK 250. In both cases, there is no maximum donation.

Social contributions50% of social contributions towards construction of hospitals and schools, and sponsorship of school sports activities, are tax deductible.


Malawi

Research and development (R&D) expendituresResearch expenditures are fully allowable as a deduction if they are for ‘experiments and research relating to trade’.

Pension contributionsThe tax-allowable amount of ordinary pension contributions made by an employer to an approved pension fund is subject to limitations. The limit with respect to each employee is the lowest of one of the following per annum:

• The actual contribution.• Up to 15% of employee’s annual salary.

Fines and penaltiesFines and penalties are not tax deductible in any way.

TaxesTaxes are not allowed as deductible expenses, except where they are local taxes.

Net operating lossesCurrent taxable income may be offset against net operating losses brought forward, and current operating losses may be increased by net unexhausted trading losses brought forward. Losses may be carried forward for six years. Net operating losses may not be carried back.

Payments to foreign affiliatesA deduction is allowed for payments to foreign affiliates if such payments are expended wholly, exclusively, and necessarily for the production of income or for the purposes of trade, and it can be demonstrated that the transaction is at arm’s length.

Group taxation

Group taxation is not permitted in Malawi.

Transfer pricingThere are transfer pricing regulations in Malawi. There is also a tax anti-avoidance provision that is used to check transactions between related parties. If transactions between related parties result in profits that are lower than what would be expected if the company was trading with an independent party, then the tax authorities can challenge the transaction.

Thin capitalisationThin capitalisation has been introduced in Malawi. However, the rules and regulations governing thin capitalisation have not been enacted. The acceptable level of gearing is therefore not yet provided.

Consequently, there are no restrictions on the level of external borrowings. If a Malawi company wants to borrow money from a foreign entity (whether or not a bank), it will require exchange control approval. In such instances, the Reserve Bank does not consider the debt-to-equity ratio. It looks at the terms and conditions to see that they are what would be commonly available on the open market between unrelated parties. As you can see, this is an anti-transfer pricing measure.


Malawi

If a new application is made for exchange control approval of foreign ownership (normally this is when there is a new business/investment into Malawi), the Reserve Bank will look at the external-debt-to-local-equity ratio. There are no fixed rules, but the Reserve Bank does not normally like external debt to be more than twice equity (i.e. 1:2 equity to external debt). It does give approval for external ownership where the proportion of external debt is higher than this as it looks at each proposal on its own merit. The applicant would have to justify the higher level of external debt in such a case.

Controlled foreign companies (CFCs)There is no CFC regime in Malawi.


Foreign tax creditMalawi does not have a provision for recognition of a foreign tax credit because the taxation regime is based on source.

Export allowancesExporters, including those manufacturing in bond, are entitled to claim additional tax allowances for non-traditional exports:

• On the export of non-traditional products, there is a 25% tax allowance on taxable income derived from exports.

• There is a 25% transport tax allowance on international transport costs for non-traditional exports. Traditional exports are tea, coffee, cane sugar, and unmanufactured tobacco and tobacco refuse.

Export allowances may not be claimed in respect of exports from mining operations.

Investment allowanceThere is a 100% investment allowance on new and unused industrial buildings, plant, and machinery for taxpayers in the manufacturing industry. A 40% investment allowance for used versions of the same items is also applicable.

Farming operationsFarming operations receive a 100% allowance with respect to expenditures incurred during any year of assessment on the following:

• Stumping, levelling, and clearing of land.• Work in connection with the prevention of soil erosion.• Boreholes.• Wells.• Aerial and geophysical surveys.• Water control work, including any canal, channel, dyke, furrow, and any flood

control structure, whether or not of a permanent nature.• Water conservation work, meaning any reservoir, water dam, or embankment

constructed for the impounding of water. In the case of water conservation work, the Taxation Act limits the amount deductible to amounts actually paid, where the farmer incurs a liability in terms of any law relating to natural resources.


Malawi

Where a farmer derives taxable income from growing timber, the farmer may elect that the taxable income is determined in accordance with the following rules:

• Carryforward the cost of planting the timber until the timber reaches maturity.• Add annually to the cost of planting the timber an amount calculated as 5% of the

cost of planting the timber until the timber reaches maturity.• When the timber is sold, a proportionate amount of the total of the carryforward

cost and annual added cost is deducted from the proceeds.• In each year of assessment, the annual added cost is treated as taxable income in the

hands of the farmer.

A farmer may not deduct any expenditure that has been recovered through a subsidy or claim a capital allowance on any assets where the expenditure has been recovered through a subsidy.

Mining operationsMining operations receive a 100% allowance with respect to mining expenditures incurred during any year of assessment. Mining expenditures are defined as capital expenditures incurred in Malawi by a person carrying on or about to carry on mining operations in Malawi:

• In searching for or in discovering and testing or in winning access to deposits of minerals.

• In the acquisition of or of rights in or over such deposits, other than the acquisition from a person who has carried on mining operations in relation to such deposits.

• In the provision of plant and machinery and industrial buildings that would have little or no value to such person if the mine ceased to work.

• On the construction of any buildings or works that would have little or no value if the mine ceased to be worked.

• On development, general administration, and management prior to the commencement of mining operations.

Persons engaged in mining operations are not entitled to claim the export tax allowance on non-traditional exports or the 15% transport tax allowance on international transport costs for non-traditional exports.

Withholding taxes

Dividend WHTDividend WHT is a final tax and is charged at 10%. The dividend is not included in the taxpayer’s taxable income, and the WHT is not deducted from the taxpayer’s tax liability.

Resident WHT rates

Nature of payment WHT rate (%)Royalties 20Rents 15Payment of more than MWK 60,000 per annum for any supplies to traders and institutions

3

Commission 20Payment for carriage and haulage 10


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Nature of payment WHT rate (%)Payment to contractors and subcontractors in the building and construction industries

4

Payment for public entertainment 20Payment of more than MWK 15,000 for casual labour 20Services 20Bank interest 20Fees 10

Non-resident WHT treatment under tax treaties

RecipientWHT (%)

Dividends Interest Royalties Rent Management feesNon-resident (1) 15 15 15 15 15Treaty:France 0 0 0 15 0Norway 5 10 5 15 0South Africa 10 15 0 0 15Sweden 0 0 0 15 0Switzerland 0 0 0 15 0United Kingdom 0 0 0 15 15

Notes

1. See Non-resident tax in the Taxes on corporate income section.

WHT exemptionThere is WHT exemption on local supplies for compliant resident taxpayers. A ‘compliant taxpayer’ is defined as one that has settled all their tax liabilities with the tax authorities, including customs and excise.

Tax administration

Taxable periodThe taxable period for income tax is a 12-month period ending on 30 June of each year. For businesses whose year-end is 31 July and 31 August, the applicable tax year-end is the preceding 30 June, while all the years ending in the subsequent months have the following 30 June as a year-end.

Tax returnsIncome tax returns are due within 180 days after the end of the financial year.

Payment of taxTax is payable in quarterly instalments within 25 days of the month following the end of the quarter, with the balance of the tax being paid upon submission of the return.

Penalties and interestThe penalty for late submission of returns is MWK 200,000.

Interest on outstanding tax liability is charged at the commercial lending rate plus 5% per annum.


Malawi

Tax audit processThe target for the tax authorities is to audit 30% of the taxpayers in any fiscal year. This translates to approximately three years per audit cycle.

Statute of limitationsThere is no statute of limitations in Malawi, except for the mandatory seven-year period for keeping records.

Topics of focus for tax authoritiesThe tax authorities have recently focussed on transfer pricing and have consequently established a unit responsible for this. All multinationals are under scrutiny to check if they are dealing at arm’s length with related entities.

Commissioner General’s power to increase taxable incomeThe Commissioner General is empowered to increase the taxable income and liability of a taxpayer when of the opinion that the main purpose or one of the main purposes of a transaction was the avoidance or reduction of tax or where the main benefit that might have been expected to accrue from a transaction was the avoidance or reduction of tax.

Mauritius 226www.pwc.com/taxsummaries

Mauritius

PwC contact

Anthony Leung ShingPricewaterhouseCoopers Ltd.2rd floorHSBC Centre18 Cybercity, Réduit 72201Republic of MauritiusTel: +230 404 5071Email: [email protected]


The following exemptions are effective as of 5 November 2016:

• Income derived by a company licensed under the Captive Insurance Act 2015 is exempt from corporate tax during a period not exceeding ten years from the Act coming into operation.

• The income of a corporation issued with a Global Headquarters Administration Licence on or after 1 September 2016, licensed by the Mauritius Financial Services Commission, is exempt, provided that:• the income is derived from activities covered under that licence, and• the corporation satisfies the conditions:

• of minimum employment, and• relating to the substance of its activities as specified by the Financial Services

Commission established under the Financial Services Act.

The exemption shall be for a period of eight income years as of the income year in which the corporation was granted its licence.

• The income of a corporation issued with:• a Global Treasury Activities Licence• a Global Legal Advisory Services Licence• an Investment Banking Licence• an Overseas Family Office (Single) Licence, or• an Overseas Family Office (Multiple) Licence,

on or after 1 September 2016 by the Mauritius Financial Services Commission, is exempt, provided that:

• the income is derived from the activities covered under that licence, and• the corporation satisfies the conditions:

• of minimum employment, and• relating to the substance of its activities, as specified by the Mauritius Financial

Services Commission.

The exemption shall be for a period of five income years as of the income year in which the corporation was granted its licence.

• Income derived by:• an individual who is a non-citizen investing not less than 25 million United States

dollars (USD) in Mauritius on or after 1 September 2016 is exempt, provided that

PwC Worldwide Tax SummariesMauritius227

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the terms and conditions as the Board of Investment may approve are complied with, or

• a company wholly owned by a non-citizen investing not less than USD 25 million in the company is exempt, provided that the terms and conditions as the Board of Investment may approve are complied with.

The exemption shall be for a period of five succeeding income years as of the income year in which the investment was made.

No exemption shall be granted in the event that the investment made under this item is reduced to less than USD 25 million at any time during the first five years.


A corporation resident in Mauritius is subject to tax on its worldwide income. A non-resident corporation is liable to tax on any Mauritius-source income, subject to any applicable tax treaty provisions.

Corporations are liable to income tax on their net income, currently at a flat rate of 15%.

Mauritius has a credit system of taxation whereby foreign tax credit is given on any foreign-source income declared in Mauritius on which foreign tax of similar character to Mauritian tax has been imposed.

All corporate bodies incorporated in Mauritius (except companies holding a Category 2 Global Business Licence and certain approved funds and associations) are subject to income tax. This applies to all associations and other registered bodies. Income derived by local partnerships is shared and taxed in the hands of the partners. Foreign corporations carrying on business, or having a place of business, in Mauritius are also liable to income tax on income derived from Mauritius. Resident sociétés are not liable to corporate tax.

Société means a société formed under any enactment in Mauritius and includes:

• a société de fait or a société en participation• a limited partnership• a joint venture, and• a société or partnership formed under the law of a foreign country.

Income tax is payable on total net income before distribution at the following rates:

Entity Rate (%)Global Business Category 1 (GBC1) companies and offshore trusts (see below) 15Freeport operators or Private Freeport Developers carrying on Freeport activities other than providing goods and services on local markets

Exempt

Global Business Category 2 (GBC2) companies (see below) ExemptAll other companies 15

Global Business Category 1 (GBC1) companies are liable to tax at the rate of 15%. However, they are entitled to a foreign tax credit equivalent to the higher of 80% of the


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Mauritius tax chargeable or the actual tax suffered abroad in respect of foreign-source income. The maximum effective tax rate is therefore 3%.

Global Business Category 2 (GBC2) companies incorporated under the laws of Mauritius are exempt from income tax and are not tax residents for treaty purposes. For more information, see the Tax credits and incentives section.

Special levies

BanksAll banks are required to pay a special levy calculated according to their book profit and their operating income derived during, or its chargeable income in respect of, the preceding year. ‘Operating income’ means the sum of net interest income and other income before deducting non-interest expense.

The rates of the special levy on banks are as follows:

Year of assessment commencing Rates1 July 2016 and 1 July 2017 Segment A: 10% of chargeable income;

Segment B: 3.4% on book profit;

1.0% on operating income

Segment A: Banking transactions with residents.

Segment B: Banking transactions with non-residents and corporations holding a Global Business Licence.

Except where the levy is computed on chargeable income, no levy shall be paid in a year where in the preceding year:

• the bank incurred a loss, or• the book profit of the bank did not exceed 5% of its operating income.

Telephony service providersProviders of public fixed or mobile telecommunication networks and services (including information and communication services, such as value added services and mobile internet), commonly known as ‘operators’, are liable to a solidarity levy. The solidarity levy is calculated according to the book profit and turnover for the preceding income year of the operator. The applicable rates are as follows:

Years of assessment commencing 1 July 2016 and 1 July 2017: 5% of the book profit and 1.5% of the turnover of the operator.

‘Book profit’ means the profit derived by an operator from all its activities and computed in accordance with International Financial Reporting Standards (IFRS).

No levy is to be paid in a year where, in the preceding year, the operator incurred a loss or the book profit of the operator did not exceed 5% of its turnover.

Corporate Social Responsibility (CSR) FundEvery year, a company has to set up a CSR Fund equivalent to 2% of its chargeable income of the preceding year.


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At least 50% of the CSR Fund set up on or after 1 January 2017 up to 31 December 2017 should be remitted to the Mauritius Revenue Authority (MRA), and at least 75% of the CSR Fund set up on or after 1 January 2018 should be remitted to the MRA.

In respect of the CSR Fund set up before 1 January 2019, the remaining amount of the CSR Fund shall be used to implement a CSR Programme in accordance with the company’s own CSR Framework. For the CSR Fund set up on or after 1 January 2019, the remaining amount shall be used to implement a CSR Programme or finance a non-governmental organisation implementing a CSR Programme in the following priority areas of intervention:

• Dealing with health problems resulting from substance abuse and poor sanitation.• Educational support targeting families in the Social Register of Mauritius.• Family protection; protection to victims of domestic violence.• Poverty alleviation targeting families listed in the Social Register of Mauritius.• Social housing targeting families in the Social Register of Mauritius.• Supporting persons with severe disabilities.

Any amount unspent (to a CSR Programme) shall be remitted to the MRA together with the company’s annual return. The amount to be remitted to the MRA could be reduced upon prior written approval from the National CSR Foundation. This is where the company intends to spend the unremitted amount within the priority areas of intervention.

No CSR money shall be spent by a company on the following activities:

• Activities discriminating on the basis of race, place of origin, political opinion, colour, or creed.

• Activities targeting shareholders, senior staff, or their family members.• Activities that are against public safety and national interest.• Religious, political, trade union, self-financing, staff welfare, and marketing

activities.

Where the amount paid out of the CSR Fund is in excess to the amount provided for under that CSR Fund, such excess may be carried forward and offset in equal instalments against any amount to be remitted to the MRA in respect of five succeeding years starting from year of assessment 2016/17.

Where a company is required to submit an Advance Payment System (APS) statement, it should remit 25% of the CSR amount to be remitted to the MRA together with the APS statements, and the final 25% is to be remitted on the submission of the final return.

Note that the following entities are not subject to the CSR regulations:

• A company holding a GBC1 Licence under the Financial Services Act.• A bank holding a banking licence under the Banking Act, in respect of its income

derived from its banking transactions with non-residents or with corporations holding a Global Business Licence under the Financial Services Act.

• An Integrated Resort Scheme (IRS) company referred to in the Investment Promotion (Real Estate Development Scheme) Regulations 2007.

• A non-resident société, a foundation, a trust, or a trustee of a unit trust scheme.


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Also note the following:

• The CSR Fund shall apply in all respects to a resident société, other than a resident société holding a Global Business Licence under the Financial Services Act, its net income shall be deemed to be its chargeable income, and any distribution of its net income shall, for the purposes of the CSR Fund, be deemed to be dividends.

Local income taxesLocal income taxes levied by local administration, such as urban councils, do not exist in Mauritius.

Corporate residence

Under domestic law, a company is resident in Mauritius for tax purposes if it is incorporated in Mauritius or centrally managed or controlled in Mauritius.

A company not incorporated in Mauritius is resident in Mauritius only if it is centrally managed and controlled in Mauritius.

In the absence of a tax treaty, any income derived from the following is taxed in Mauritius:

• Any business carried on wholly or partly in Mauritius.• Any contract wholly or partly performed in Mauritius.

A GBC2 company is not considered a resident in Mauritius for the purposes of double taxation treaties (DTTs).

Under a tax treaty, a company is considered a resident in Mauritius if it is incorporated in Mauritius or if its effective management is in Mauritius.

Permanent establishment (PE)Generally, a PE is created under a tax treaty if one of the following criteria is met:

• Branch, office, factory, workshop, or installation used for extraction of natural resources.

• Building site, construction, installation, assembly, or supervisory services where the activity on the site lasts for a minimum of six months or 12 months, depending on the tax treaty.

Other taxes

Value-added tax (VAT)VAT is charged by VAT-registered entities at the standard rate of 15% on all goods and services supplied by them in Mauritius (except those taxed at 0%), other than the following exempt supplies (not an exhaustive list):

• Bread, wheat, and cereal flours (excluding wheat flour).• Medical, hospital, and dental services, including clinical laboratory services, services

provided in a health institution, and veterinary services.• Educational and training services provided by institutions approved by the Mauritius

Qualification Authority.


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• Construction of building for residential purpose, provided letter of intent relating to an IRS was issued prior to 1 October 2006.

• Sale or transfer of an immovable property, a building or part of a building, apartment, flat, or tenement.

• Banking services, except:• services provided to merchants accepting credit/debit card• services in respect of safe deposit locker, and issue and renewal of credit/debit

cards• services for keeping and maintaining customer’s accounts, and• services supplied by a bank holding a banking licence under Banking Act 2004 in

respect of its banking transactions with non-residents and corporations holding a Global Business Licence.

An entity should register for VAT if turnover exceeds 6 million Mauritian rupees (MUR) a year. However, certain service providers (e.g. accountants and auditors, attorneys and solicitors, consultants, surveyors, valuers) should register for VAT irrespective of their turnover.

VAT-registered persons with annual taxable turnover exceeding MUR 10 million should submit their VAT return monthly and electronically by the end of the month following the end of the taxable month. Otherwise, VAT return filing is completed quarterly (i.e. within 20 days following the end of a taxable quarter). The taxable quarter is a period of three months ending at the end of March, June, September, or December. Also, where the VAT-registered persons are filing pay-as-you-earn (PAYE) returns electronically under the Income Tax Act (ITA), they are required to file the VAT returns electronically by the end of the month following the taxable period.

Customs dutiesCustoms duty is levied on commodities imported into Mauritius. The rate of duty applicable is the rate in force under the Customs Tariff Act at the time the bill of entry is validated at the Customs.

A number of exemptions and concessions are available to industries, organisations, and persons under the Customs Tariff Act.

Excise taxesAn excise duty is levied at the time of importation on selected commodities, which includes spirits, vehicles, and petroleum products at corresponding prescribed rates. A levy is also chargeable on some specified excisable goods, whether the goods are for home consumption or not, at corresponding prescribed rates.

Campement site taxPer the Land (Duties and Taxes) Act, every owner of a campement site situated in a specified zone is subject to an annual tax known as the campement site tax, varying between MUR 2 to MUR 6 per square metre.

The tax shall be payable to the authorised officer on or before 31 July in every year.

Land transfer taxPer the Land (Duties and Taxes) Act, land transfer tax is levied on the transfer of land (excluding the value of any building thereon) and is payable by the transferor at the rate of 5%.


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Land transfer tax is also payable at the above rates by the transferor upon transfer of the shares of a company owning immovable properties, based on the value of shares or property, whichever is the lower.

The following transactions are not subject to land transfer duty (non-exhaustive list):

• A transfer of immovable property from ascendant to descendant (or vice versa).• A transfer of immovable property or shares between companies forming part of a

group of companies, as defined in the Companies Act 2001.• A transfer of immovable property where such transfer takes place between

companies having the same shareholders for the sole purpose of merging.

Leasehold taxPer the Land (Duties and Taxes) Act, leasehold tax is levied on the registration of a deed of transfer of leasehold rights in state land. Both the lessor and the lessee are liable to leasehold tax (in equal proportion) at the rate of 20% on the open market value of the leasehold right at the time of transfer.

Registration dutyThe Registration Duty Act provides, among others, for a duty at an effective rate of 5% of the sum of money paid as a condition of an exchange of immovable property, or a division in kind of immovable property, where such sum does not exceed MUR 100,000.

The transfer of shares of a company other than those listed on the Stock Exchange of Mauritius or traded on the secondary market is subject to registration duty if the company holds immovable property.

Stamp dutyStamp duty is levied and paid to the Registrar General on every document at the time of registration, transcription, inscription, or erasure of inscription. Stamp duty varies from MUR 25 to MUR 1,000.

Payroll taxesEvery employer has to register with the MRA as an employer and has to withhold income tax from the emolument of the employee at the time the emolument is made available to the employee.

The employer has to remit the amount withheld within 20 days from the end of the month in which the tax was withheld. Where the employer has 25 or more employees, the PAYE return and tax withheld should be remitted electronically. In cases where the employer has less than 25 employees, the PAYE return and tax withheld may be remitted electronically.

Failure to comply with the above entails a penalty of 5% of the unpaid tax and an interest of 1% per month or part of the month during which the tax remained unpaid.

Social security contributions

National Pensions Fund (NPF)Contributions to the NPF are payable by the employer at 6% of cash remuneration, up to a maximum remuneration of MUR 15,710 per month. Employees contribute to the NPF at 3%, subject to a maximum amount of MUR 471 per month.


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National Savings Fund (NSF)Employers are required to contribute 2.5% of remuneration to the NSF, subject to a maximum of MUR 393 per month per employee, and to pay a monthly levy of 1.5% of basic salaries and wages of every employee. Employees are required to pay a 1% levy, subject to a maximum amount of MUR 157 per month.

Branch income

Tax rates on branch income are the same as on corporate profits. No tax is withheld on the remittance of profits by way of dividend to a head office.


Inventory valuationInventories should be valued at the lower of historical cost or net realisable value. The last in first out (LIFO) basis of valuation is not allowed for tax purposes.

Conformity is required between book and tax reporting. Where the MRA is not satisfied that the basis of valuation is acceptable (e.g. where the LIFO basis has been applied), it will make such adjustment as it believes is appropriate to determine the profits arising from the business carried on.

Capital gainsThere is no tax on capital gains in Mauritius. However, certain transactions are taxed as ordinary business profit instead of capital gains. Where a transaction is in the nature of trade, the MRA may take the view that it is an ordinary trading transaction and assess the gains derived as income.

Any gains derived from the sale of shares held for less than six months are classified as trading income and are therefore taxed as ordinary income.

Gains realised from the sale of any property or interest in property acquired in the course of a business, as part of a profit-making undertaking or scheme, are taxable as ordinary income.

Dividend incomeCompanies, whether resident or not, are exempt from tax on dividends received from resident companies.

Dividend income received from abroad by a company resident in Mauritius (non-GBC1 company) is subject to tax at the rate of 15%. Credit for any foreign tax withheld is given, subject to documentary evidence provided to the MRA.

Dividend income received from abroad by a GBC1 company is subject to tax at an effective rate of 3%.

Stock dividendsA resident company can distribute stock dividends (bonus shares) proportionately to all of its shareholders. Stock dividends per se or convertible into cash are not taxable in the hands of the recipient. Dividends in kind (i.e. other than cash or shares) are treated as taxable benefits.


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Interest incomeInterest income received by resident companies (non-GBC1 companies) is liable to tax at the rate of 15%.

A GBC1 company receiving interest income from abroad is liable to tax at the effective rate of 3%.

Interest income paid by any person, other than by banks or non-bank deposit-taking institutions under the Banking Act, to individuals and non-residents is liable to withholding tax (WHT) at the rate of 15% (final tax).

Royalty incomeRoyalty income received locally is subject to tax at the rate of 15%.

Royalty income received from abroad is subject to tax at the rate of 15%. Any tax withheld from abroad will be allowed as a foreign tax credit. However, a company holding a GBC1 Licence receiving royalty income from abroad on which no foreign tax is suffered will be entitled to a deemed foreign tax credit of 80% of the Mauritian tax payable.

Foreign incomeResident corporations are taxed on their worldwide income, but tax credit and treaty relief is generally available in order to avoid double taxation (see Foreign tax credits in the Tax credits and incentives section for more information).

Undistributed income of foreign subsidiaries is not subject to any special taxation as long as the income of the foreign subsidiary before distribution is not included in the accounts of the local parent company. Dividends paid by the foreign subsidiary to the local parent company will, however, be taxable to the latter, whether or not such dividends are actually received in Mauritius.

Deductions

DepreciationAnnual allowance rates vary between 5% and 100% of base value (unless stated otherwise), as per the following table:

Capital expenditure incurred on

Rate of annual allowancePercentage of

Base value CostIndustrial premises, excluding hotels 5Industrial premises dedicated to manufacturing 30Commercial premises 5Hotels 30Plant or machinery:

Costing MUR 50,000 or less 100Costing more than MUR 50,000: Ships or aircraft 20 Aircraft and aircraft simulators leased by a company

engaged in aircraft leasing100


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Capital expenditure incurred on

Rate of annual allowancePercentage of

Base value Cost Motor vehicles 25 Electronic and high precision machinery or equipment,

computer hardware and peripherals, and computer software

50

Plant and machinery (excluding passenger car) by a manufacturing company

50

Furniture and fittings 20 Other 35

Improvement on agricultural land for agricultural purposes 25Scientific research 50Golf courses 15Acquisition or improvement of any other item of a capital nature that is subject to depreciation under the normal accounting principles

5

Tax depreciation need not conform to book depreciation. Depreciation is generally recaptured on disposal or sale when balancing charges or allowances are computed.

GoodwillGoodwill amortised under normal accounting principles is not allowed as an expense for tax purposes. However, the cost amount can be capitalised, and an annual allowance of 5% of cost can be claimed.

Leasing agreementsThere has been a substantial increase in leasing activity over the last decade. Where an asset is transferred under a financial lease agreement, the lessee is entitled to capital allowances on the value of the asset, including finance charges, as if it was an outright sale by the lessor.

On the other hand, the lessor cannot capitalise the leased assets in its books, and no capital allowance is claimed on the assets leased. However, the lessor is taxable on the interest income derived from the assets leased.

There are no special rules for operating leases.

Set-up costsSet-up costs are not deductible for tax purposes, as they are considered pre-operational expenses.

Interest expensesExpenditure incurred on interest is deductible, provided it is incurred in respect of capital employed exclusively in the production of income.

A request can be made by the tax authorities to support any claim made in respect of interest expense by a certificate from a qualified auditor certifying that the amount of interest claimed has been incurred on capital employed exclusively in the production of gross income.

Interest paid by a GBC1 company to a non-resident is exempt from corporate tax.


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The tax authorities may refuse to allow a deduction on expenditure incurred as interest where it is found that:

• the interest is payable to a non-resident who is not chargeable to tax on the amount of the interest, or

• the interest is not likely to be paid in cash within a reasonable time.

Bad debtA provision for bad or doubtful debt is generally not deductible unless a court ruling has been obtained against the debtor.

Charitable contributionsDonations/gifts, whether to charitable institutions or not, are not deductible for tax purposes.

Fines and penaltiesFines and penalties are not deductible for tax purposes as they are expenses not exclusively incurred for the production of gross income.

TaxesIncome taxes and foreign taxes paid are not normally deductible; however, some taxes (e.g. municipal taxes relating to buildings, land transfer tax, irrecoverable input VAT) are deductible.

Other significant itemsA bank or an approved financial institution may claim as deductions any irrecoverable loans due by a company in liquidation in respect of which winding-up procedures have started or by a company in receivership.

Net operating lossesLosses made in an accounting year are carried forward for a maximum of five years.

A company may claim to carry forward to an income year any loss it incurred in any former income year, provided the company can demonstrate a 50% continuity of shareholding at the end of those income years. Losses resulting from capital allowances can be carried forward indefinitely. Loss carrybacks are not permitted.

Where a company takes over another company engaged in manufacturing activities, or two or more companies engaged in manufacturing activities merge into one company, any unrelieved loss of the acquiree may be transferred to the acquirer in the income year in which the takeover takes place, on such conditions relating to safeguard of employment as may be approved by the Minister of Finance.

Payments to foreign affiliatesRoyalties, interest, and service fees payable to foreign affiliates are allowed as expenses, provided they correspond to actual expenses incurred, are reasonable, and do not exceed what would be paid under an arm’s-length agreement. There are certain limitations if the recipient of the interest is not liable to Mauritius tax. Royalties paid to non-residents by GBC1 companies, banks out of their foreign-source income as defined in the ITA, and trusts are tax-exempt.


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Group taxation

There are no group taxation provisions in the Mauritius tax legislation other than the transfer of losses by tax incentive companies, sugar factory operators, subsidiaries located in the Island of Rodrigues, and manufacturing companies upon their take-over (see Net operating losses in the Deductions section for more information).

Transfer pricingMauritius does not have any specific transfer pricing legislation. However, it does contain an arm’s-length provision requiring transactions between related parties to reflect a commercially objective value, which would be the amount charged for the services were the parties not connected.

Thin capitalisationMauritius does not have specific thin capitalisation legislation; however, it does have other anti-avoidance provisions as described below:

If a company has issued debentures to each of its shareholders, subject to the number, the nominal value, or paid-up value of the shares in that company, any interest paid on debentures and claimed as a deductible expense may be disallowed and treated as a dividend.

Controlled foreign companies (CFCs)There are no CFC rules under Mauritius tax legislation.


Global Business Category 1 and 2 companiesA GBC1 company can trade with a Mauritian resident as well as non-residents.

However, any trading with residents should be only incidental to the main operations with non-residents and should be subject to the Financial Services Commission’s (FSC’s) approval.

Transactions made with a Mauritian resident are taxed at the rate of 15%, whereas transactions with non-residents are taxed at an effective tax rate of 3%.

The registration and application of GBC1 companies should be submitted to the FSC through a duly licensed Management Company on a prescribed form accompanied by the following:

• The certified supporting documents.• The applicable processing fees and relevant fees.

A GBC1 company is tax resident in Mauritius and may apply for a Tax Residence Certificate (TRC) from the Director General of the MRA should this be required by the tax authorities in the jurisdiction in which the company is conducting its business.

Investors may benefit from an extensive network of DTTs. Entities holding a GBC1 Licence wishing to avail to the benefits of a DTT must obtain a TRC issued by the MRA.

A GBC1 company is encouraged to have more substance in Mauritius by ascertaining the following:


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• It has at least two directors, resident in Mauritius, of sufficient calibre to exercise independence of mind and judgment.

• It maintains, at all times, its principal bank account in Mauritius.• It keeps and maintains, at all times, its accounting records at its registered office in

Mauritius.• It prepares, or proposes to prepare, its statutory financial statements and causes or

proposes to have such financial statements to be audited in Mauritius.

In addition to the requirements mentioned above, when determining whether a corporation is managed and controlled from Mauritius, the Commission shall also consider whether a corporation meets at least one of the following criteria:

• The corporation has or shall have office premises in Mauritius.• The corporation employs or shall employ on a full-time basis, at the administrative/

technical level, at least one person who shall be resident in Mauritius.• The corporation’s constitution contains a clause whereby all disputes arising out of

the constitution shall be resolved by way of arbitration in Mauritius.• The corporation holds, or is expected to hold, within the next 12 months, assets

(excluding cash held in a bank account or shares/interests in another corporation holding a Global Business Licence) that are worth at least USD 100,000 in Mauritius.

• The corporation’s shares are listed on a securities exchange licensed by the Commission.

• The corporation has, or is expected to have, a yearly expenditure in Mauritius that can be reasonably expected from any similar corporation that is controlled and managed from Mauritius.

A GBC1 company can apply for a TRC to show substance in Mauritius. The TRC is generally issued within a period of seven days from the date of application, provided that the person has submitted the return required under the ITA 1995.

A GBC2 company is required to have, at all times, a registered agent in Mauritius. Only a management company shall act as the registered agent of a company holding a GBC2 Licence. A GBC2 company is defined as a resident corporation conducting business outside Mauritius and can engage in activities other than the following:

• Banking.• Financial services.• Holding, managing, or otherwise dealing with a collective investment fund or

scheme as a professional functionary.• Providing registered office facilities, nominee services, directorship services,

secretarial services, or other services for corporations.• Providing trusteeship services by way of business.

An applicant for a GBC2 Licence must submit the following forms/documents to the FSC through a management company:

• The application form, duly filled in and signed.• The certified supporting documents.• The applicable processing fees and relevant fees.

The fees payable to the FSC for registering a GBC1 and a GBC2 company are as follows:


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Fee GBC1 (USD) GBC2 (USD)Processing 500 100Annual Licensing 1,750 235*

* This amount excludes the annual registration fee of USD 65, or such other fee as the Registrar of Companies may determine, payable to the Registrar of Companies.

The TRC is renewable on an annual basis and issued in two formats, one specific to India and one general for any other country.

A GBC2 company is a limited liability company incorporated in Mauritius. However, GBC2 companies are exempt from Mauritius tax and are not required to file tax returns. GBC2 companies are therefore not able to access the tax treaty network of Mauritius.

Companies in the Freeport zoneThe income of a Freeport operator derived from Freeport activities is exempt from income tax, except for income that is derived from goods or services provided on the local market.

Income tax exemption for vessel ownersOwners of foreign vessels registered in Mauritius are exempt from income tax on income derived from the operation of such vessels, including any income derived from the chartering of such vessels. Owners of local vessels registered in Mauritius are also exempt to the extent that the income is derived from deep-sea international trade only.

Foreign tax creditsGenerally, double taxation is avoided by means of unilateral credit relief for foreign tax paid. The net amount of foreign income that has borne tax is grossed up at the foreign rate of tax, and the foreign tax paid is allowed as a credit against the Mauritius tax payable. However, the tax credit cannot exceed the Mauritius tax referable to the relevant foreign income. Unused credit is not refunded.

Regarding foreign income derived from countries with which Mauritius has DTTs, a tax credit is given for foreign tax in accordance with the treaties. There are clauses in the DTTs that provide that income arising from certain specified foreign sources is to be exempt from Mauritius tax.

Mauritius has signed DTTs with 43 countries (see the Withholding taxes section for a listing).

The following treaties await ratification: Gabon, Ghana, Jersey, Kenya, Morocco, Nigeria, and Russia.

The following treaties await signature: Cabo Verde, Cote D’Ivoire, Gibraltar, Malawi, and The Gambia.

The following treaties are being negotiated: Algeria, Burkina Faso, Canada, Czech Republic, Greece, Hong Kong, Lesotho (New), Mali, Montenegro, North Sudan, Portugal, Republic of Iran, Saudi Arabia, Spain, St. Kitts and Nevis, Tanzania, Vietnam, and Yemen.

A GBC1 company may, in the absence of evidence of payment of foreign tax, claim as tax credit (presumed tax credit) an amount equal to 80% of the Mauritius tax


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chargeable on the foreign-source income. The presumed tax credit may also be claimed by a bank against the tax payable on income derived from banking transactions with non-residents and with GBC1 and GBC2 companies.

In the case of foreign dividends, the general tax credit includes foreign tax imposed on the profits out of which the dividends are paid (underlying tax), provided that the shareholding in the foreign company is at least 5%.

Mauritius also allows a tax-sparing credit under its local tax legislation.

Withholding taxes

There is no WHT in Mauritius for payments made by GBC companies to non-residents not carrying out any business in Mauritius. There is no WHT on dividends received from resident companies and on payments made by a company having an annual turnover of less than MUR 6 million. The table below shows the rates of WHT applicable for the following payments:

Payment WHT (%)Interest payable by any persons (other than banks or non-bank deposit-taking institutions operating under the Banking Act) to individuals and non-resident companies

15

Royalties payable to:Residents 10Non-residents 15

Rent 5Payments to contractors and sub-contractors 0.75Payments to providers of services (accountant/accounting firm, architect, attorney/solicitor, barrister, dentist, doctor, engineer, land surveyor, legal consultant, project manager in the construction industry, quantity surveyor, property valuer, and tax adviser or representative)

3

Payments made by ministry, government department, local authority, statutory body, or the Rodrigues Regional Assembly on contracts, other than payments to contractors and sub-contractors and payments to providers of services as specified above:

For the procurement of goods and services under a single contract, where the payment exceeds MUR 300,000

1

For the procurement of goods under a contract, where the payment exceeds MUR 100,000

1

For the procurement of services under a contract, where the payment exceeds MUR 30,000

3

Payments made to the owner of an immovable property or one’s agent 5Payments made to a non-resident for any services rendered in Mauritius 10Payment of management fees to an individual by any person, other than an individual, to a:

Resident 5Non-resident 10

Payment made by a person in connection with activities performed in Mauritius by a non-resident entertainer or sportsperson

10

Reduced WHT rates with treaty countries are provided below.

Recipient Dividends (%) Interest (%) Royalties (%)Non-treaty 0 15 15


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Recipient Dividends (%) Interest (%) Royalties (%)Treaty: (1)Bangladesh, People’s Republic of 10 (2) (2)Barbados 5 5 5Belgium 5/10 10 0Botswana 5/10 12 12.5China 5 10 10Congo, Republic of 5 5 0Croatia 0 0 0Cyprus 0 0 0Egypt 5/10 10 12France 5/15 (2) 15Germany 5/15 0 10Guernsey 0 0 0India 5/15 (2) 15Italy 5/15 (2) 15Kuwait 0 0 10Lesotho 10 10 10Luxembourg 5/10 0 0Madagascar 5/10 10 5Malaysia 5/15 15 15Monaco 0 0 0Mozambique 8/10/15 8 5Namibia 5/10 10 5Nepal 5/10/15 10/15 (3) 15Oman 0 0 0Pakistan 10 10 12.5Qatar 0 0 5Rwanda 0 0 0Senegal 0 0 0Seychelles 0 0 0Singapore 0 0 0South Africa 5/15 0 0Sri Lanka 10/15 10 10Swaziland 7.5 5 7.5Sweden 0/15 0 0Thailand 10 10/15 (4) 5/15 (5)Tunisia 0 2.5 2.5Uganda 10 10 10United Arab Emirates 0 0 0United Kingdom 10/15 (2) 15Zambia 5/15 10 5Zimbabwe 10/20 10 15

Notes

1. The domestic rate of WHT on dividends is 0%. For completeness, the treaty rates that would apply if the domestic rate was higher are provided.

2. Same rate as under domestic law.3. 10% of the gross amount of the interest if the beneficial owner is a financial institution, an insurance

company, or an investment company receiving income from financial investments; 15% in all other cases.


Mauritius

4. 10% of the gross amount of the interest if it is received by any financial institution (including an insurance company); 15% in all other cases.

5. 5% of the gross amount of the royalties received as consideration for the use of, or the right to use, any copyright of literary, artistic, or scientific work, excluding cinematograph films, tapes, or discs for radio or television broadcasting. 15% is applicable on the gross amount of the royalties in any other case.

Tax administration

Taxable periodCompanies are assessed for a year beginning 1 July and ending 30 June on their income for the preceding year ending 30 June. Where a company closes its accounts at a date other than 30 June, it may elect to adopt as a basis year the accounting year ending in the 12-month period preceding the year of assessment.

Tax returnsEvery company, both taxpayer and non-taxpayer, must file a return of its income on the basis of the income year preceding the year of assessment. The return must be filed within six months of the financial year-end.

Payment of taxAny tax due should be paid when the return is filed and within the six months deadline.

Advance Payment System (APS)Every company (except non-resident trusts and non-resident partnerships) having gross income exceeding MUR 10 million or that has taxable income is required to submit an APS statement and pay any tax for the quarter immediately following the end of the accounting year.

Tax under APS can be calculated based on the following:

• 25% of taxable income for the accounting year immediately preceding the commencement of that quarter or

• the actual taxable income of the current quarter.

The APS statement shall be filed and tax (if any) shall be payable within three months from the end of the quarter.

PenaltiesIf timely payment is not made, a penalty representing 5% of the amount of tax due is payable. In addition, interest at the rate of 0.5% of the tax unpaid for each month or part of a month is payable until the tax is paid. A penalty of MUR 2,000 for each month or part of a month is also prescribed for failure to file a return, subject to a maximum of MUR 20,000.

Tax audit processTax audits are carried out on a sample basis throughout the year. Generally, the audits are fairly detailed, but more protracted enquiries are carried out into cases where fraud is suspected.

Statute of limitationsWhile there is no statutory time limit for recovering tax already assessed, the Director General is barred from making an assessment for a period beyond three years preceding the current tax year.


Mauritius

Topics of focus for tax authoritiesThe MRA pays special attention to the arm’s-length nature of any transactions between related parties and evidence of foreign tax suffered predominantly for GBC1 companies in respect of their claim for actual foreign tax credit.

Other issues

United States (US) Foreign Account Tax Compliance Act (FATCA)On 27 December 2013, the government of the Republic of Mauritius and the government of the United States of America signed an Agreement for the Exchange of Information Relating to Taxes (the Agreement) to set the legal framework to enable exchange of tax information between the two countries. This was followed by the signing of another agreement known as the Inter-Governmental Agreement (Model 1 IGA) to improve international tax compliance and to implement FATCA. Both agreements have been published in the Government Gazette No. 61 of 5 July 2014 as GN 135 of 2014. Both the Agreement and the IGA entered into force on 29 August 2014.

The Agreement provides for exchange of tax information (upon request, spontaneous and automatic) between Mauritius and the United States. The IGA provides for the automatic reporting and exchange of information in relation to accounts held with Mauritius financial institutions by US persons and the reciprocal exchange of information regarding financial accounts held by Mauritius residents in the United States.

The MRA has issued guidance notes (available on MRA’s website) to provide practical assistance to financial institutions, businesses, their advisers, and officials dealing with the application of FATCA.

Corporate Reporting Standards (CRS)Mauritius signed the Organisation for Economic Co-operation and Development (OECD) Convention on Mutual Administrative Assistance in Tax Matters in June 2015 and, as a member of the Early Adopters Group, the country had initially planned to implement the CRS early. The effective date of 1 January 2016 was subsequently deferred to 1 January 2017, and the first reporting will now start from 31 July 2018.

The Mauritius ITA was amended to enact the CRS, and the MRA is the competent authority to administer the process. Under the CRS, financial institutions (FIs) will need to report accounts held by non-residents to the MRA, which will be used for eventual exchange with other jurisdictions. In line with the OECD commentaries and handbook on the CRS, the MRA published a set of guidance notes in April 2016 (MRA Guidance Notes) to help identify which FIs have reporting obligations as well as set out the type of financial information and accounts that will need to be reported.

Morocco 244www.pwc.com/taxsummaries

Morocco

PwC contact

Mahat ChraibiPricewaterhouseCoopers Maroc35, Rue Aziz BellalMaârif - CasablancaMarocTel: +212 5 22 99 98 00Email: [email protected]


Exemption of transfer of investment assetsStarting 1 January 2017, the transfer of investment assets between group companies is tax neutral. Such exemption is subject to formalities and conditions set by decree.


In general, the Moroccan tax code considers that all revenues and capital gains generated in Morocco are subject to Moroccan taxation.

Companies are taxed on the difference between their trading income and expenditure. Business expenses incurred in the operation of the business are generally deductible unless specifically excluded.

The CIT rates are as follows:

Taxable income (MAD*)CIT rate (%)From To

0 300,000 10300,001 1,000,000 20

1,000,001 5,000,000 305,000,001 and above 31

* Moroccan dirham

A higher CIT rate of 37% applies to leasing companies and credit institutions.

Non-resident companies can, under certain conditions, opt for an alternative tax at the rate of 8% of the amount of their contract, whatever the taxable income is.

Minimum contributionCIT cannot be lower than a minimum contribution of 0.5% (or 0.25% for specific products) levied on the turnover and other specific revenues. The minimum contribution is not due during the first 36 months following the beginning of activities.

Local income taxesThere are no provincial or local taxes levied on income in Morocco.

PwC Worldwide Tax SummariesMorocco245

Morocco

Corporate residence

Companies, whether or not established in Morocco, are subject to CIT on all profits or income relating to property that they own, activities that they carry on, and profit-making transactions that they carry out in Morocco, even when these are of an occasional nature.

Permanent establishment (PE)The notion of PE is not explicitly defined under Moroccan tax law.

However, the Moroccan tax authorities apply this concept for non-resident companies according to some determined criteria that are inspired from the various tax treaties that Morocco has signed with other countries.

Indeed, the question of whether an entity will be deemed to have a PE in Morocco is a question of fact, in particular, subject to having, in Morocco, any fixed place of business through which a foreign entity conducts industrial or commercial activity for an indefinite or substantial period of time.

The term fixed place of business includes, for instance, a place of management or operations, a branch, an agency, a premises used as a sales outlet, a construction of assembly project, or a purchasing office. Also, in some specific cases, a non-resident company may be deemed as having a PE if it operates in Morocco through a dependent agent.

Other taxes

Value-added tax (VAT)VAT is levied under the Moroccan Tax Code and is due on all industrial, commercial, and handicraft transactions taking place in Morocco, as well as on importation operations.

The standard rate of VAT is 20%. Lower rates of 7%, 10%, and 14% apply to specifically designated operations.

The sale of goods is considered as taking place in Morocco, and thus subject to VAT, if the goods sold are delivered in Morocco.

The sale of services is considered as taking place in Morocco, and thus subject to VAT, if the services sold are consumed or used in Morocco.

Two types of exemptions from VAT are provided. The first is an exemption with credit, equivalent to the zero tax concept. The second is an exemption without credit.

The zero-rated supplies include (but are not limited to) supplies of the following goods or services:

• Exported goods and services.• Certain agricultural equipment supplied under prescribed circumstances.• Investment goods recorded as fixed assets in the company accounting and acquired

during the first 24 months following the beginning of activity.• Offshore banks for certain specific operations, such as interest and commissions.


Morocco

• Goods and services rendered to companies established in free trade zones (FTZs).• Activities related to hydrocarbon exploration, etc.

Exempt supplies without deduction right include (but are not limited to) supplies of the following goods or services:

• Milk, sugar, bread, cereals.• Fiscal stamps.• Newspapers, books, documentaries.• Interest on government loans.

Customs dutiesImportation of goods in Morocco gives rise to payment of importation duties, the VAT on importation, and the special tax on importation called Taxe Parafiscale à l’Importation (TPI).

Customs duties are computed on the basis of the ad valorem value of the goods at the time of their entrance into Morocco.

Customs duties can be reduced if the imported products are covered by free trade agreements signed by Morocco or other specific regulatory dispositions.

Under Moroccan tax law, the importation operations are subject to VAT at the rate of 20%. Lower rates of 7%, 10%, and 14% apply to specifically designated importations.

The Moroccan tax law also offers some economical customs regimes that provide VAT exemptions with credit (equivalent to zero rate).

The TPI rate is 0.25% levied on the value of the imported goods.

Excise taxesExcise taxes apply to specific products imported or produced in Morocco, such as tobacco, alcohol, and lubricants.

Professional taxA professional tax is levied on individuals and enterprises that carry out a professional activity in Morocco.

The tax consists of a tax on the rental value of business premises (rented or owned) and fixed assets. The tax rates range from 10% to 30%, with exemption for the five first years of activity.

The rental value is exempted for the portion of cost exceeding MAD 50 million.

Registration dutiesRegistration duties are due on all written or verbal conventions, such as property transfer of real estate, shares, or rights; company set up; equity increase; and goodwill transfer.

The rates of registration duties range from 1% to 6%. A flat rate of MAD 200 is also applicable to specific operations and conventions.

The company set up and the capital increase are subject to registration duties at the rate of 1%.


Morocco

The transfer of non-listed shares is subject to registration duties at the rate of 4%. However, a 6% rate is applicable to the transfer of shares of real estate companies.

The applicable rate for the transfer of goodwill is 6%.

Payroll taxesIndividual income tax on salaries is paid by way of withholdings made by resident employers.

Social security contributionsThe only mandatory social security regime in Morocco is the one managed by the CNSS fund (Caisse Nationale de Sécurité Sociale).

The CNSS rates are as follows and apply to the gross salary, excluding exempted allowances and indemnities:

Employee portion (%)

Employer portion (%)

Computation basis ceiling (MAD)

Family allocation - 6.40 -Social allocation 4.29 8.60 6,000Professional tax - 1.60 -Mandatory medical care 2.26 4.11 -

Branch income

Non-resident entities are subject to income tax at normal CIT rates derived from all profits or income relating to property that they own, activities that they carry on, and profit-making transactions that they carry out in Morocco.

The taxation is levied to the portion of income allocable to the branch located in Morocco.

In addition, a 15% ‘branch tax’ applies to a non-resident’s after-tax profits. Some treaties may provide protection against the application of the branch tax.

For resident entities having branches in Morocco, the income is taxable in the hands of the head office at normal CIT rates.


Inventory valuationCost of inventory must be determined in accordance with the first in first out (FIFO) or the average cost method. The last in first out (LIFO) method is prohibited.

Capital gainsCapital gains are taxable as a part of ordinary business income.

Dividend incomeDividends received by corporate shareholders from Moroccan-resident entities subject to CIT must be included in business profits of the recipient company, but the dividends are 100% deductible in the computation of taxable income.


Morocco

The participation exemption in Morocco is also applicable to dividends derived from foreign subsidiaries.

Interest incomeInterest income received from tax resident entities (other than financial institutions) is subject to a withholding tax (WHT) at the rate of 20%. The WHT is deductible from CIT.

Rents/royalties incomeRents and royalties income are taxable as a part of ordinary business income.

Foreign incomeThe income derived from activities carried out in a foreign country is not subject to taxation in Morocco unless the taxation is granted by treaty dispositions.

Note that the participation exemption in Morocco is also applicable to dividends derived from foreign subsidiaries.

Deductions

DepreciationFixed assets are normally depreciated according to their economic life duration according to the provision of the accounting regulation.

Depreciation is computed according to two methods: the straight-line method and the declining-balance method.

The tax regulation (through administrative guidelines) has provided indicative depreciation rates applicable when the company activity or the asset to be depreciated is specific or particular.

Indicative depreciation rates are as follows:

Asset Depreciation rate (%)Business premises and buildings 4 to 5Light construction (metal frame construction) 10Production equipment, tools, and construction fittings 10 to 15Huge computer facilities 10 to 20Computers and related items (printers) and programs, as well as vehicles (cars, trucks, vans, lifters)

20 to 25

Office furniture and software 20Non-significant tools 30

GoodwillUnder Moroccan tax law, goodwill cannot be subject to amortisation. However, a decrease of the value of goodwill is allowed to be recorded through provisions.

Start-up expensesThe development as well as incorporation expenses shall be capitalised and depreciated for tax purposes over a period of five years.


Morocco

The carryforward of any loss due to the above expenses is limited to a period of four years.

Interest expensesInterest on loans granted by direct shareholders is deductible if the capital is fully paid in. Also, the deductible interest is limited to (i) the portion of the loan that does not exceed the share capital equity and (ii) the interest rate provided, annually, by the Ministry of Finance (2.51% in 2017).

Bad debtBad debts that are definitively non-recoverable (after all recovery procedures have been undertaken) are treated, from a tax point of view, as deductible losses.

Charitable contributionsCharitable contributions made by companies are deductible only if they are granted to foundations and societies explicitly provided by law.

The contributions made to the community enterprise are deductible at up to 0.2% of the company turnover.

Fines and penaltiesFines and penalties are not tax deductible expenses if they relate to infringements to legal and regulatory dispositions.

However, expenses relating to late payment penalties (calculated in accordance with the provisions of the law) should be tax deductible.

TaxesTaxes constitute deductible expenses, except CIT itself and recoverable taxes.

Net operating lossesTax losses may be carried forward for a period of four years from the end of the loss-making accounting period. However, the portion of a loss that relates to depreciation may be carried forward indefinitely.

A carryback mechanism is not allowed under Moroccan law.

Payments to foreign affiliatesPayments to foreign affiliates are allowed under Moroccan law. However, such payments should respect the arm’s-length principle and foreign exchange regulations.

Group taxation

Under Moroccan law, consolidation or group taxation is not allowed.

Transfer pricingMorocco has a general provision within its tax legislation requiring transactions between related parties to be at arm’s length.

Where a Moroccan company is directly or indirectly connected with enterprises situated inside or outside Morocco, profits transferred indirectly to such enterprises, by means of increases or decreases in buying or selling prices or by any other means, must be included among taxable profits on the tax return.


Morocco

In order to determine the amount to be included among taxable profits, Moroccan tax authorities will make comparisons with other similar companies carrying on normal business activities or by means of direct assessment based on information available to the tax authorities.

Thin capitalisationNo specific thin capitalisation rules exist in Morocco.

However, the tax law restricts the interest rate on debts issued by shareholders and the basis of calculating deductible interests.

Interest incurred is tax deductible if the shareholder’s capital is fully paid. Additionally, the sum of the shareholder loans generating deductible interests should not exceed the equity capital subscribed, and the applicable interest rate should not exceed the official rate calculated annually on the basis of six months treasury bills.

Controlled foreign companies (CFCs)There are no provisions for CFCs in Morocco.


The Moroccan tax law provides several tax incentives for specific sectors of activities.

Export companiesExport companies are exempt from CIT on their profits related to their export turnover during the first five years following their first export transaction. These companies benefit from a reduced CIT rate of 17.5% in subsequent years.

Hotel companiesHotel companies are fully exempt from CIT on their profits relating to foreign currency turnover for the first five years following their first accommodation operation in foreign currency. They also benefit from a reduced CIT rate of 17.5% on such profits for subsequent years.

Mining companiesExporting mining companies, including those that sell products to export companies, benefit from a reduced CIT rate of 17.5%.

Agricultural companies

Small-scale companiesAgricultural companies with a turnover of less than MAD 5 million qualify for a total exemption of CIT. If such companies realise a turnover that exceeds MAD 5 million in year (n), they become liable to CIT in year (n), year (n+1), year (n+2), and year (n+3).

Moreover, such companies qualify for a reduced rate of 17.5% during the first five fiscal years following the first year during which they become liable to CIT.

Medium and large-scale companiesFinance Law 2014 provides for a progressive approach to tax medium and large-scale agricultural companies that realise a turnover exceeding MAD 5 million. As such,


Morocco

companies with a turnover exceeding MAD 35 million, MAD 20 million, or MAD 10 million should become liable to CIT, respectively, in 2016, 2018, and 2020.

Moreover, such companies qualify for a reduced rate of 17.5% during the first five fiscal years following the first year during which they become liable to CIT.

Capital risk companiesCapital risk companies are exempt from CIT on profits derived within the scope of their activities (these are profits related to purchases of companies’ shares that support such companies’ development and the sales of such shares thereafter).

Hydrocarbon companiesCompanies holding hydrocarbon exploration and exploitation permits are exempt from CIT for ten years from the beginning of hydrocarbon regular production.

Banks and holding companies located in offshore zonesBanks and holding companies located in offshore zones benefit from a reduction in CIT for the first 15 years of operation.

Banks may opt for a minimum CIT of 25,000 United States dollars (USD) or pay the tax at a reduced rate of 10%.

Holding companies pay a flat tax of USD 500 during the first 15 years.

Casablanca Finance City (CFC)A law was enacted in 2010 for the setting up of a finance area in Casablanca, called, Casablanca Finance City.

The CFC statute may be granted to specific financial institutions as well as non-financial institutions that offer such services as auditing, fiscal, legal, financial, actuarial, and human resources management advisory.

The above statute may also be granted to regional and international headquarters.

Entities established in Casablanca Finance City are exempt, for their export turnover, from CIT during the first five years following the date they obtain the CFC statute. These companies benefit, for the export turnover, from a reduced rate of 8.75% in subsequent years.

Free trade zones (FTZs)The activities that must be necessarily performed by the companies established in the FTZs are mainly the following (the activities may vary for each FTZ):

• Food processing industries.• Textile and leather industries.• Metallurgic, mechanic, electric, and electronic industries.• Chemical and special chemical industries.• Services connected with the aforementioned activities.

Entities established in FTZs are exempt, for their export turnover, from CIT during the first five years. These companies benefit, for the export turnover, from a reduced CIT rate of 8.75% for the following 20 years.


Morocco

Moreover, for entities established in FTZs, the dividends paid to non-residents relating to activities performed in the FTZ are totally exempted from the WHT on dividends.

Listed sharesNon-resident entities are exempt from capital gains derived from the sale of stocks listed on the Casablanca stock exchange, excluding the shares of real estate entities.

Foreign tax creditIncome tax paid on income earned from outside Morocco may be credited against CIT payable in Morocco if provided by treaty.

Withholding taxes

WHT on dividendsThe standard WHT rate on dividends is set at 15% according to the Moroccan law (unless reduced by treaty).

WHT does not apply to dividends paid to Moroccan companies subject to Moroccan CIT, subject to the delivery of a property attestation.

A branch tax of 15% applies to the net income transferred by the Moroccan branch to foreign entities (may be reduced by the tax treaty).

WHT on interestsThe standard WHT on interest paid to non-resident entities is set at 10% as provided by the Moroccan law (unless reduced by treaty). However, the Moroccan law provides that interest on loans granted in foreign currency with a maturity exceeding ten years is exempt from WHT.

WHT on services paid to non-resident entitiesAccording to the Moroccan tax code, all payments of all kinds of services rendered by non-resident entities are subject to WHT at the rate of 10%.

However, it shall be noted that treaty dispositions limit the scope of application of WHT only to remunerations that constitute royalties. Such dispositions overrule the domestic tax law provided by the Moroccan law.

Treaty WHT ratesPayments to non-resident corporations and individuals are subject to WHT, as shown below.

Recipient

WHT (%)Dividends

Interest (1) Royalties

Individuals and non-qualified

companiesQualifying

companiesArab Maghreb Union (2) (3) (3) (3) (3)Austria 10 5 10 10Bahrain 10 5 10 10Belgium 15 6.5 10 10Bulgaria 10 7 10 10Canada 15 10 10 5/10 (4)


Morocco

Recipient

WHT (%)Dividends

Interest (1) Royalties

Individuals and non-qualified

companiesQualifying

companiesChina (People’s Republic) 10 10 0/10 5/10Czech Republic 10 10 10 10Denmark 15 10 10 10Egypt 12.5 10 10 10Finland 15 10 10 10France 15 10 10 5/10 (4)Germany 15 5 10 10Guinea Conakry 10 5 10 10Hungary 12 10 10 10India 10 10 10 10Ireland 10 6 10 10Italy 15 10 10 5/10 (4)Ivory Coast 10 10 10 10Jordan 10 10 10 10Korea (Republic of) 10 5 10 10Latvia 10 6 10 10Lebanon 10 5 10 5/10 (4)Luxembourg 15 10 10 10Malaysia 10 5 0/10 10Mali 10 5 10 10Malta 10 6.5 0/10 10Netherlands 15 10 10 10Norway 15 10 10 10Oman 10 5 0/10 10Pakistan 10 10 10 10Poland 15 7 10 10Portugal 15 10 10 10Qatar 10 5 0/10 10Romania 10 10 10 10Russia 10 5 10 10Singapore 10 8 10 10Spain 15 10 10 5/10 (4)Switzerland 15 7 10 10Syria 10 7 10 10Turkey 10 7 10 10Ukraine 10 10 10 10United Arab Emirates 10 5 10 10United Kingdom 15 10 10 10United States 15 10 10 10

Notes

1. Some treaties provide for an exemption for certain types of interest (e.g. interest paid to public bodies and institutions). Such exemptions are not dealt with in this treaty chart.

2. The member states of the Arab Maghreb Union are Algeria, Libya, Mauritania, Morocco, and Tunisia.3. There is no limitation on WHT under the treaty.


Morocco

4. The lower rate (i.e. 5%) usually applies to copyright royalties and other similar payments in respect of the production or reproduction of any literary, artistic, or dramatic work (excluding cinematographic and television films), while the 10% rate applies to other types of royalties.

Tax administration

Taxable periodThe taxable period corresponds to 12 months. The first taxable period can be less than one year but should never exceed it.

Tax returnsCIT returns must be filed within three months following the closing of the fiscal year.

Payment of taxPayment of tax is made during the fiscal year by way of four instalments of 25% each based on the CIT of the previous year.

In case the CIT of the year exceeds the sum of the four instalments, the company should proceed to tax regularisation along with the submitting of the taxable income return after three months following the closing of the fiscal year (i.e. 31 March for fiscal year corresponding to the calendar year). Otherwise, the exceeding tax amount should be offset against the following instalments without limitations.

PenaltiesFinance Law 2016 provides for the application of the following rates for penalties and late payment interest:

In case of late tax return:

• 5% penalty in case the tax return is submitted within 30 days following the legal deadline, or in case of corrective return.

• 15% penalty in case the tax return is submitted after the above mentioned 30 days.• 20% penalty in case of automatic taxation due to non-submission of tax return.

In case of late tax payment:

• 5% penalty in case the tax payment is made within 30 days following the legal deadline.

• 10% penalty in case the tax is paid after the above mentioned 30 days.• 20% penalty in case of non-payment or late payment of VAT and other WHTs.• 5% interest related to the first month late tax payment and 0.5% interest for the

following months.

Statute of limitationsThe statute of limitations runs until the end of the following fourth year. This period may be extended in case of deficits or credits.

Topics of focus of tax authoritiesThe topics of focus of tax authorities depend on each specific situation (sector of activity, company size, etc.). However, it is very common to find the following points:

• Transfer pricing.• Tax treatment of provisions.


Morocco

• Taxation of indemnities and benefits granted to employees.

Other issues

Exchange controlsForeign investors are allowed, following the accomplishment of some formalities, to freely transfer abroad the whole proceeds of their investments in Morocco (i.e. dividends, shares sale price, and liquidation income under the condition that the initial investment is realised in one of the foreign currencies listed by the Moroccan Central Bank).

However, some specific transfers of funds into and out of Morocco are subject to prior authorisations from the exchange control office.

Choice of business entityThe legal vehicles used by foreign companies for the purpose of setting up a business in Morocco are the branch and the subsidiary.

Under subsidiary form, the foreign entities generally opt for the corporation (SA) or the limited liability company (SARL).

The SARL is most adequate for companies with low investment capital while the SA is most appropriate for companies that are investing an important amount of capital. In general, the rules relating to the organisation and functioning of an SARL are more flexible than those required for an SA.

Mozambique 256www.pwc.com/taxsummaries

Mozambique

PwC contact

João MartinsPricewaterhouseCoopers, LdaAv. Vladimir Lenine, 174, 4º AndarEdifício Millennium Park MaputoMozambiqueTel: +258 21 350 400Email: [email protected]


The Mozambique Parliament approved changes to the Value Added Tax (VAT) Code at the end of 2016, which entered into force in January 2017.

The new amendments make VAT revenue management by the Mozambique Revenue Authority more efficient, simplify the compliance procedures, and adjust the system to align with the economic development and thus widen the tax base. Among others, the key changes introduced are:

• Taxation of electronic services.• Reduction of the deadline for submission of VAT returns when the taxpayer is in a

VAT credit position.• Reduction from 12 to 4 months the period to apply for VAT refund when the credit

in favour of taxpayers amounts to 100,000 Mozambican metical (MZN).• Extension of the definition of national territory for VAT purposes to the areas on

which Mozambique has sovereign powers for the exploration and production of natural resources.

• Removal of the VAT exemption on exploration-related services rendered to oil and gas companies and mining companies during the exploration phase.

• Introduction of fiscal machines.

It is also expected that a new regulation of the VAT Code will be approved within 90 days in order to cover the above amendments to the VAT Code.


Corporate entities and other entities with headquarters or permanent establishment (PE) in Mozambique are subject to corporate income tax (CIT) based on their worldwide income. On the other hand, corporate entities and other entities without headquarters or PE in Mozambique (i.e. non-resident entities) are only subject to CIT on the income earned in Mozambique.

CIT is levied on taxable profits, defined as accounting profits adjusted to comply with tax law rules, at a tax rate of 32%.

Specific tax regime and tax benefits for mining activityUnder the specific tax regime for mining activity, namely the tax on mining production (TMP), the value of mining product is determined by the price of the last sale by the taxable person, which must match with the price of reference in the international

PwC Worldwide Tax SummariesMozambique257

Mozambique

market, or, if there was no sale, is determined by the price of reference in the international market.

The rates for mining products are as follows:

• 8% for diamonds.• 6% for precious metals, precious stone and semi-precious stone, and heavy sand.• 3% for base metals, coal, and others.• 1.5% for sand and stone.

Such rates can be reduced to 50% when the products are used in Mozambique for the development of local industry.

The settlement of the TMP is performed on the tenth day of the month that follows the production.

Surface tax (ST) is a tax due for entities undertaking a mining activity in the country. ST is based on the type of mining title and year of activities, with exception of the mining concession for mineral water that has an amount of MZN 85,000 per mining title.

The additional settlement for the TMP and ST must be done within 30 days from the tax settlement.

At the end of each year, the taxpayer must report the yearly profit for each mining title, separately.

The holder of the mining title also pays the tax on mining resource rent (TMRR), and, for its deduction, the concessionaire must provide information to the tax authorities on the accumulated net cash flows, corresponding to the taxable income.

The applicable rate for TMRR is 20%.

At the beginning of the fiscal year, each taxpayer must prepare a forecast to TMRR that must be regularly updated and presented by 31 May of the fiscal year. The TMRR is paid in two instalments (50% in August and 50% in November), based on the forecast.

Specific tax regime and tax benefits for oil and gas operationsIn accordance with the specific tax regime and tax benefits for oil and gas operations, the obligation to pay the tax on oil production (TOP) is deemed to be at the time that the oil produced comes to the station defined in the concession agreement.

The settlement of the TOP is made by the taxpayer, which must submit the official form to the tax administration by the tenth day of the following month of the production, and, if the taxpayer fails to do so, the tax administration will make the necessary assessments based on the elements it has and the application of penalties established in article 22 of the mentioned regulation.

The TOP rates are the following: 10% for crude oil and condensate and 6% for natural gas and liquefied natural gas (LNG), which can be reduced by 50% in cases where the production is to be used for the development of local industry. It is considered local industry if the sale is for the national hydrocarbon company (ENH, E.P).


Mozambique

After the settlement made by the taxpayer, the tax administration shall evaluate the official model and can make corrections to it. If a correction is to be made, the tax administration has the prerogative to conduct an additional settlement, in which it must charge or cancel the calculated difference, and this amount must be corrected in 30 days from the tax assessment.

It is important to mention that the government has a period of time to notify the taxpayer to pay in kind, which is within 12 months in advance, starting from the first day of the month to which the tax relates, indicating the quantity of oil and delivery point.

In order to have benefits established in Law no. 27/2014 of 23 September, the taxpayer must apply to the Customs Services for the exemption. In this request, the applicant must attach the global list of the goods to import for the determination of eligible goods for the exemption.

The violation of this regulation is subject to impeditive sanctions, suspensive sanctions, and extinctive sanctions.

Local income taxesSee Municipality taxes in the Other taxes section.

Corporate residence

Corporate residence is determined on the basis of a company’s place of incorporation or effective management. Thus, all companies with headquarters in Mozambique, as well as any PE of non-resident entities, are considered tax residents and are liable for CIT on their worldwide income.

Permanent establishment (PE)Under the relevant internal legislation, a non-resident entity is deemed to have a PE in Mozambique whenever any of the following circumstances exists:

• It has premises or other fixed places of business through which industrial, trading, agricultural, rendering of services, or similar activities are totally or partially carried out.

• It has an office, branch, plant, workshop, mines, quarries, oil or natural gas wells, or other places of extraction of natural resources.

• It has a construction, installation, or assembly site when the duration of works exceed six months, including the activities of coordination, inspection, and supervision connected to these sites.

• It has persons or hired personnel, acting and dealing in Mozambique, who are not independent agents in the terms of the law but rather acting on behalf of the company with legal capacity to conclude contracts on its behalf and its name within the scope of the company’s activities.

Other taxes

Value-added tax (VAT)VAT is chargeable on the sale of most goods and services as well as on imports. The standard rate is 17%. Usually, VAT is recoverable by corporate entities, except for those


Mozambique

engaged in special business activities (e.g. financial and insurance operations, leasing [exemption with restrictions], sale of immovable property, some exempt activities).

Customs dutiesCustoms duties are charged on importation of goods into Mozambique, and the applicable rates vary from 0% to 20%. Mozambique is part of the Southern African Development Community (SADC) protocol on commercial trade that exempts from customs duties some goods produced within the SADC region. However, in order to benefit from the exemption, the importer should provide proof of the origin of the said goods through the presentation of the certificate of origin of goods.

Mozambique also has signed agreements with the European Union (EU) based on which preferential rates are applicable on certain goods imported from such region.

Excise taxesExcise duties are levied on certain goods manufactured locally or imported, which are identified in a specific table that is an integrant part of the Excise Duty Act and indicates the applicable rates. Amongst others, the said table includes goods such as tobacco, beer and other alcoholic beverages, vehicles, cosmetics, cloths, airplanes, boats, etc.

Examples of excise duty rates include the following:

• Alcoholic beverages: 40% (55% for wine of fresh grape).• Tobacco: 75%.• Air vehicle without engine: 35%.• Boats and other recreational or sportive crafts: 35%.• Cloths and respective accessories: 30%.

Property transfer taxes (SISA)In Mozambique, a property transfer tax is charged on transfers of real estate, excluding the land, which is owned by the state. The rate of tax is 2% of the selling price of the building. When the beneficiaries live in a country with a privileged tax regime, the applicable rate is 10%.

Stamp duties and service chargesVarious documents require the payment of stamp duties. Service charges are payable for the performance of certain services for official purposes, such as those rendered by public notaries. These duties vary generally from 0.03% to 50% on the amount of the transaction supported by the document to be stamped. In some other cases, the stamp duty comprises fixed amounts, ranging from MZN 0.50 to MZN 5,000.

Payroll taxesAll remunerations paid to employees are subject to monthly withholding as per the definitive tax rates that are established in a specific schedule approved by law, depending on the gross amounts received and personal and family specific circumstances. The employer is obligated to withhold at source the tax due by the employees.

The monthly withholding rates vary from 0% to 32%, being withheld definitively at source.


Mozambique

The amounts withheld by the company shall be delivered to the tax authorities up to the 20th day of the following month.

The company is not allowed to support any taxes due by employees or third parties. In case any tax is paid by the company on behalf of employees, such cost will not be accepted as a deductible cost unless this is treated as part of the remuneration cost and taxed at the hands of the employee as employment income.

Social security contributionsSocial security contributions are payable by employers and employees on monthly remuneration. The aggregate rate of contribution is 7%, with 4% paid by the employer and the remaining 3% by the employee.

Municipality taxesMunicipality taxes that should be considered for corporate purposes include the following:

Municipality tax on real estateThe municipality tax on real estate is levied annually on the value of immovable assets situated within the municipality and owned or possessed by corporate entities. Effective tax rates range from 0.4% (for housing purposes) to 0.7% (for office purposes or mixed activities) of the building value, depending on the municipality.

Municipality tax on economic activitiesThe municipality tax on economic activities is levied on commercial or industrial activities carried out within a municipal territory. The tax depends on the activity being carried out, adjusted by coefficients, which are based on the zone and total area of the premises in square metres. In Maputo, this tax is calculated based on the following formula:

Maputo tax on economic activities = Basis rate x Index of category x Index of location x Index of area occupied

Where the basis rate is the applicable maximum amount of the national minimum salary (MZN 8,400 for the year 2016).

Where the index of the location varies from 1.3 to 1.5, depending on the location of the premises within the municipality.

Where the index of the area occupied varies from 1.2 to 1.5, depending on the nature of the activities and the space occupied by the premises.

Municipal vehicles taxThe municipal vehicles tax replaces the vehicles tax within the municipality and is levied on the use of specific vehicles (e.g. light and heavy vehicles less than 25 years old, motorcycles less than 15 years old, aeroplanes, and boats for private use). This tax is due by the owners who are residents of a municipality, regardless of the place of registration of the vehicle owned.

The rate varies, depending on specific criteria such as type of fuel, engine capacity, period of registration, and weight.


Mozambique

This tax must be paid between January and March or within 30 days after the acquisition of the vehicle.

Branch income

From a tax perspective, branches are liable for Mozambican CIT as a separate entity; consequently, the regime is the same that would apply to a Mozambican resident company. However, on the grounds that branches do not distribute dividends, the 20% withholding tax (WHT) does not apply to the after-tax profits arising in Mozambique.


Inventory valuationAll inventory valuation methods generally accepted according to international accounting principles are permitted for tax purposes, provided that the method is:

• used by the taxpayer consistently and• based on arm’s-length prices duly documented and effectively exercised.

Based on the above assumptions, last in first out (LIFO) and first in first out (FIFO) methods are allowed. Write-downs and depreciation of inventories are not allowed. Conformity between book and tax reporting is required.

Large companies began adopting International Financial Reporting Standards (IFRS) in 2010.

Capital gainsCapital gains less any capital losses derived from the sale or disposal of tangible fixed assets, including insurance indemnities received in case of accident, are taxed as part of normal income. If a taxpayer reinvests the sale proceeds within three tax years following the year of sale, the gain may be deferred until the end of the third year. A three-year reinvestment period may be accepted, provided a prior application is submitted to the Minister of Finance. However, if the taxpayer does not realise the reinvestment, the CIT that was not assessed during the three-year period will be assessed, along with compensatory interest.

Capital gains arising from indirect transfers of participating interests of assets located in the country are subject to taxation. Capital gains resulting from the disposal of shares, participating interests, or rights in general, between non-residents, whether direct or indirect, free or for consideration, are taxable in Mozambique, provided the transaction involves assets located in the country.

Dividend incomeIn the case of resident companies, income arising from dividends is excluded from taxable income, provided that the shares that a resident company holds in another resident company represents at least 20% of the total capital and are held for at least two consecutive years (or with an undertaking to hold the shares for this period). The same applies to income arising from risk capital companies and holding companies (Sociedade Gestora de Participações Sociais or SGPSs) or from subsidiaries as a result of the application of technical reserves in insurance companies. However, in the case of


Mozambique

holdings, the percentage of share capital decreases to 10% and shares should be held for at least one year.

If the shareholding falls outside the parameters indicated above, the tax withheld (20%) constitutes a payment on account. A tax credit corresponding to 62.5% of the CIT is attributable to the gross-up dividend.

Interest incomeInterest is subject to 20% WHT. In the case of foreign entities, the WHT is considered as a definitive tax. In the case of resident entities, it is considered as an advance of the final tax.

Interests on treasury bonds and public debt bonds listed on the stock exchange are subject to definitive WHT at 20%.

Royalty incomeRoyalty income is subject to 20% WHT. In the case of resident entities, royalty income is considered as an advance of the final tax. In the case of foreign entities, the WHT is considered as a definitive tax.

In case royalty income is earned by a foreign entity with tax residency in a country with which Mozambique signed a DTT, the tax rate can vary from 5% to 10%, depending on the DTT.

Foreign incomeMozambican resident companies are taxed on the total income earned on a worldwide basis. Please note that there is no provision on tax deferral in Mozambique in relation to income earned abroad. Double taxation treaties (DTTs) allow tax paid abroad to offset Mozambican CIT. Mozambique has signed DTTs with Botswana, India, Italy, Macau, Mauritius, Portugal, South Africa, the United Arab Emirates, and Vietnam.

Deductions

DepreciationDepreciation is a deductible cost for CIT purposes, according to the regulations of the CIT Code, subject to restrictive and specific rules.

The main legal principles regarding depreciation are as follows:

• The establishment of the applicable rates falls under the competence of the Ministry of Finance.

• The calculation is carried out on a straight-line basis in accordance with the rates applicable.

The main depreciation rates are:

Assets Rate (%)Tangible assets:

Industrial buildings 2.00Residential buildings 10.00Office and administrative buildings 2.00Machinery and installations, air conditioning, and telephone equipment 12.50


Mozambique

Assets Rate (%)Lifts 8.33Tools 25.00Laboratory equipment 12.50Telex and interior equipment 10.00Furniture and filing systems 10.00Typewriters and accounting machines 16.66Computers and printers 25.00Computer servers 20.00

Warehouse and filing installations: Of concrete 5.00Of wood 6.66Of steel 8.33

Trucks 20.00Automobiles 25.00Intangible assets:

Pre-operating expenses incurred prior to the commencement of business 33.33Deferred expenses arising in connection with increases in share capital, changes in form of business enterprises, issuance of debentures, marketing and other studies, and financial expenses incurred for the acquisition or own production of fixed assets prior to completion

33.33

Patents 10.00Manufacturing licences, concessionaire agreements, and similar rights 5.00 (1)Trademark or premium of taking over leases of real estate (2)

Notes

1. Subject to certain conditions set forth by the tax authorities.2. Depreciation is only allowed in cases of effective reduction of value within the limits regarded as

reasonable by the tax authorities.

Accelerated depreciationNew immovable assets, used for the furtherance of the business, may be depreciated by increasing to 50% the normal depreciation rates approved by law. This benefit is also granted to rehabilitated immovable assets, machinery, and equipment used in agro-industrial activities, provided there is an investment project duly approved by the government.

GoodwillAlthough goodwill is considered for accounting purposes in Mozambique, there is no provision for goodwill in the tax legislation. Consequently, goodwill should be regarded as an intangible asset for tax amortisation purposes.

Interest expensesA basic principle regarding acceptance of costs and expenditures requires that these are necessary for the company’s/branch’s activity (i.e. indispensable to generate the profits and gains obtained by the company). This concept includes, among others, interest and other financial costs that are, in principle, also deductible for tax purposes unless the tax authorities assume that the interest rate applicable in one transaction is higher than the applicable rate applicable in the market, with the exceeding amount being subject to taxation.


Mozambique

Interest and other types of remuneration above the Maputo Interbank Offered Rate (MAIBOR) plus two percentage points at time of payment on the shareholders’ loans are not tax-deductible costs.

ProvisionsIn Mozambique, companies are able to create all the provisions necessary and relevant for the normal course of business. However, for tax purposes, only the provisions listed below can be deducted as a cost:

• Bad debts.• Depreciation of stock.• Ongoing judicial procedures.• Credit institutions/Insurance companies.• Reconstruction of mines.• Rehabilitation of land.

Any other provisions reflected in the company’s accounts will not be accepted as tax-deductible costs.

Bad debtWith regards to provisions for bad debts, companies are only allowed to deduct 1.5% per year (and 6% accumulated) of the provisions created for bad debts.

Charitable contributionsDonations can be deducted as costs for tax purposes, provided specific requirements are met and the beneficiaries thereof are:

• Social and cultural organisations that, acting without lucrative intent, carry out actions in art, education, science, health, preservation and restoration of cultural patrimony, or social activities: Donations can be deducted up to the limit of 5% of the previous year’s taxable income.

• The Mozambican state: Donations can be fully deducted.

It is important to note that this deduction is not applicable automatically, as it is necessary to present proof that the donation was previously communicated to and approved by the Ministry of Finance.

Fines and penaltiesFines and other penalties paid due to any infringement, which do not have a contractual basis, including interest, are not accepted as tax-deductible costs.

TaxesTaxes paid in relation to the activities of a company are tax deductible, excluding CIT itself.

Net operating lossesCarryback of losses is not allowed in Mozambique. On the other hand, losses may be carried forward for a period of five consecutive years.

Payments to foreign affiliatesAny payments to non-residents are allowed as deductible expenses, provided that the amount does not exceed normal rates and that the taxpayer is able to prove that a business transaction was carried out with the non-resident company. The tax


Mozambique

authorities may redetermine taxable income if, due to a special relationship between the Mozambican and non-resident companies, certain conditions existed that allowed a calculation of profit that differed from the profit that would have been calculated without the existence of such relationship (i.e. the arm’s-length principle).

Group taxation

There are no group taxation provisions available in Mozambique. Each member of a group of companies preparing consolidated accounts for accounting purposes must file separate tax returns in order to be taxed on its profits on a stand-alone basis.

Transfer pricingThe tax authorities may proceed with the necessary corrections for assessing the profits for tax purposes whenever:

• by virtue of special relations between the taxpayer and other entity, different conditions from those that should be normally agreed upon between independent entities have been established, and

• in consequence of those conditions, the profits for accounts purposes are different from those that would have resulted had such special relations not existed.

The corrections above shall be equally applicable whenever the profits for accounts purposes regarding non-resident entities are different from those that should have resulted if the non-resident entity were a separate entity carrying out similar activities in similar conditions and with total independence.

The corrections referred to above will also be applicable to entities that carry out activities simultaneously subject and not subject to the CIT Code, provided that similar evasion regarding such activities is verified.

Whenever these corrections are applicable to one taxpayer of CIT (Taxpayer 1) by virtue of special relations with another taxpayer of CIT or of individual income tax (Taxpayer 2), the adjustments reflecting the corrections made in the calculation of the profits for tax purposes of Taxpayer 1 shall be applicable in the assessment of the profits for tax purposes of Taxpayer 2.

The definition of ‘special relation’ has been introduced into the transfer pricing regime. However, specific transfer pricing regulations remain non-existent, although they are expected to be approved during this year.

Thin capitalisationWhere loans from related foreign corporations exceed twice the corresponding equity in the borrowing Mozambican corporation, the interest on the excess borrowing is not tax deductible. Thin capitalisation rules are in force.

According to the Mozambican thin capitalisation rules, subsidiaries are considered and treated as thinly capitalised companies if and to the extent that, as at any date of the tax period, any of their relevant debt-to-equity ratios exceed a factor of two.

‘Relevant debt-to-equity ratio’, within the context of the law, means the ratio between, on one hand, the amount of direct and indirect indebtedness of a Mozambican


Mozambique

company towards a specially related non-resident, and on the other, the amount of equity that this non-resident holds in the Mozambican company.

A ‘specially related non-resident’, for these purposes, is an entity with special links with another, which includes any entity that:

• holds, either directly or indirectly, at least 25% of the share capital of the Mozambican company

• though holding less than 25%, has a significant influence on its management, or• both taxpayer and non-resident entity are under control of the same entity, which

has participation in their share capital, either directly or indirectly.

Under any of these circumstances, interest paid to such specially related non-residents is not allowed as a tax-deductible cost for the Mozambican company in the part that corresponds to the excessive indebtedness, unless the company can prove that it could have obtained the same level of indebtedness at comparable conditions from unrelated parties, taking into account the nature of its business, its sector of activity, dimension, and other relevant criteria.

Controlled foreign companies (CFCs)In Mozambique, we do not have any specific provision regarding taxation of CFCs.


Foreign tax creditResident companies are allowed to deduct a credit correspondent to a tax paid abroad. The tax credit to be deducted should be equal to the lower of the amount of Mozambican corporate tax imputed to income obtained abroad or the amount of foreign tax effectively paid.

Inbound investment incentivesIn addition to the guarantees of ownership and remittance of funds abroad, the Mozambican government also guarantees the concession of tax and customs incentives. The incentives vary depending on whether a company is starting a new venture or rehabilitating one and also on the nature of the project to be developed. The incentives discussed in this section are the generic benefits applicable to standard projects. Certain specific benefits also may be applicable depending on the activities of the industry for the investment project (e.g. agriculture, tourism, science and technology).

Exemption from import dutiesAn exemption from customs duties and VAT applies upon the importation of capital equipment, listed in Section K of the Customs Tariff Schedule.

Tax credit for investmentInvestments in new fixed tangible assets used in the operations of an enterprise within the Mozambican territory may benefit from an investment tax credit equal to 5% to 10% of the total investment realised, for a period of five years. This investment tax credit is offset against CIT, up to the total amount of the tax assessment. This incentive does not apply when the investment in tangible fixed assets is with respect to the construction, acquisition, restoration, or extension of buildings, passenger vehicles, furnishings, and articles of comfort and decoration, leisure equipment, advanced technology, or other assets not directly associated with the production activity carried


Mozambique

out by the enterprise. When the project is located outside Maputo City, this tax credit is increased to up to 10%.

Advanced technology incentiveThe amount invested in specialised equipment classified as advanced technology, during the first five years from the date of commencement of activity, may be deducted from taxable income for purposes of calculating CIT, up to a maximum of 10% of taxable income.

Professional training incentiveInvestment expenditures for professional training of Mozambican workers shall, up to a maximum amount of 5% of the taxable income (10% in case of professional training related to new/high technology equipment), be deductible from taxable income for the purposes of calculating CIT during the first five years from the date of the commencement of such activities.

Exploration incentivesDuring a period of five years counting from the date of exploration (i.e. the date the implementing company starts the activities approved under the investment project terms of authorisation), the following expenditures may be treated as deductible expenditures for purposes of calculating CIT:

• In the case of undertakings carried out in the City of Maputo, 110% of the value of expenditures for the construction and rehabilitation of roads, railways, airports, telecommunications, water supply, electric energy, and other works of public utility is deductible for tax purposes.

• In the case of undertakings carried out in the rest of the provinces, an amount equal to 120% of the expenditures referred to in the paragraph above is deductible for tax purposes.

• In the case of expenditures for the acquisition for personal ownership of works of art and other objects that are representative of Mozambican culture, as well as activities that contribute to the development of such works, 50% of the expenditures are deductible for tax purposes.

Withholding taxes

Any non-resident entity carrying out economic activities in Mozambique, without being registered as a taxpayer, is liable to a final and definitive 20% WHT that is applied on all income earned. An exception exists for (i) telecommunications and international transport, as well as the respective installation and assembly of equipment made by those same entities, (ii) construction and rehabilitation of production, transport, and distribution of electricity infrastructures in the rural zones under the public projects of rural electrification; and (iii) maritime vessels freight for fishing and coasting activities, all of which are subject to a 10% WHT rate.

Both Mozambican resident and non-resident recipients are liable to tax on dividends at a tax rate of 20%.

Tax treatiesIn accordance with Mozambique’s DTTs, the following tax rates are applicable to dividends, interest, and royalties:


Mozambique

Recipient

WHT (%)

Dividends Interest RoyaltiesCapital gains on

sharesBotswana 0/12 (4, 5) 10 10 0India 7.5 10 10 0Italy 15 10 10 0Macau 10 10 10 0Mauritius 8/10/15 (1, 2, 3) 8 5 0Portugal 10 10 10 (6)South Africa 8/15 (1, 3) 8 5 0United Arab Emirates 0 0 5 0Vietnam 10 10 10 0

Notes

1. The 8% rate applies if the recipient of the dividends is a company that has more than 25% of the share capital in the company that distributes the dividends.

2. The 10% rate applies if the recipient of the dividends is a company that has less than 25% of the share capital in the company that distributes the dividends.

3. The 15% rate applies in all other cases.4. The 0% rate applies if the recipient of the dividends is a company that has more than 25% of the share

capital in the company that distributes the dividends.5. The 12% rate applies in all other cases.6. Gains are only taxed in the other state if assets of the entity sold are composed of more than 50%

immovable assets.

Tax administration

Taxable periodThe tax year is, as a general rule, the calendar year. A different tax year may be applied (if previously authorised by the Ministry of Finance) for companies that carry out activities that justify a different year (e.g. held at more than 50% by a company with a different year) or non-resident companies with a PE in Mozambique.

Tax returnsCIT assessment must be prepared by the companies on annual returns, based on the accounting records and on adjustments prescribed by the tax regulations.

The submission of the annual tax return is due by the last working day of May for companies using the calendar year as their tax year. For companies with a tax year that is not coincident with the calendar year, the presentation of the tax return is due by the last day of the fifth month subsequent to the respective year-end.

Payment of taxMozambican companies and non-resident companies with a PE in Mozambique must pay CIT as follows:

• In three advance payments (based on 80% of the preceding tax year’s CIT), due in May, July, and September of the respective tax year; or, if the tax year chosen is not coincident with the calendar year, in the fifth, seventh, and ninth months of the respective tax year.


Mozambique

• In three special advance payments (based on 0.5% of the preceding year’s turnover less the advance payments made in previous years, which cannot be less than MZN 30,000 or more than MZN 100,000) due in June, August, and October of the respective tax year; or, if the tax year chosen is not coincident with the calendar year, in the sixth, eighth, and tenth months of the respective year.

Final tax should be paid by the last working day of May or the fifth month after the tax year-end in cases where a different tax year is adopted.

Tax audit processThe tax authorities may carry out an inspection whenever necessary. Normally, the inspection occurs after the taxpayer files a refund application or on a random basis.

Statute of limitationsThe statute of limitations period is five years, but the company documents must be kept for ten years.

Topics of focus for tax authoritiesBased on our experience and through assistance provided to several clients during audit reviews, we noted that the Inspectors are focusing their attention on the following aspects:

• Confirmation of the amounts reported on the monthly VAT forms and the annual tax return to determinate if the figures are the same or not or if there are non-declared sales.

• Confirmation of whether the non-deductible costs were added back to the tax computation for CIT purposes.

• Deductibility of VAT.• Analysis of supplier invoices to confirm the right of deduction of VAT.• Analysis of the company’s sales for verification of whether there are undisclosed

sales.• Authorisation for electronic invoicing.• VAT on self-assessment.• Mandatory books, namely, ledger (diário), day book (razão), and inventory and

balance (inventário e balanço).• WHT on payments to non-resident entities.• Thin capitalisation.

Namibia, Republic of 270www.pwc.com/taxsummaries

Namibia, Republic of

PwC contact

Johan NelPricewaterhouseCoopers344 Independence AvenueWindhoek, NamibiaTel: +264 61 284 1122Email: [email protected]


2016 tax amendments

Withholding taxes (WHTs)During 2016, the WHT rate on foreign directors and entertainment fees increased back to 25%, effective 21 June 2016. See the Withholding taxes section for more information.

Environmental dutiesEnvironmental taxes were introduced mid 2016 on vehicle tyres, non-energy saving light bulbs, and carbon dioxide emissions by most motor vehicles.

The following rates apply:

• Vehicle tyres: 10 Namibian dollars (NAD) per tyre.• Light bulbs: NAD 3 per bulb.• Carbon dioxide emission:

• Petrol vehicles: CO2 emission per manufacture certificate exceeding 120g/km * NAD 40.

• Diesel vehicles: CO2 emission per manufacture certificate exceeding 140g/km * NAD 40.

If a manufacturer’s certificate on the CO2 cannot be submitted, the following formulas apply to calculate the CO2 emission:

• For petrol engines: 120 + (0.05 * engine capacity in cm3).• For diesel engines: 140 + (0.05 * engine capacity in cm3).

Other indirect tax mattersNote that provision has been made for an export levy with rates ranging from 0% to 2% on certain products in the fishing, mining, and forestry sectors. The Act (Export Levy Act, 2016), however, has not been made effective yet pending further consultations with the affected industries.

Amendments to the Customs and Excise, 1998 have been gazetted during December 2016 but implementation has, inter alia, been withheld pending procedures on the introduction of ‘preferred economic operator’ procedures, electronic communication with the Customs authority, etc.

PwC Worldwide Tax SummariesNamibia, Republic of271



Namibia has a source-based tax system, which means that income from a source within Namibia or deemed to be within Namibia will be subject to tax in Namibia, unless a specific exemption is available.

Income earned by foreign companies from a source within or deemed to be within Namibia will be subject to tax in Namibia. In such cases, the foreign entity must determine whether it is obligated to register a local entity or branch. A foreign company is required to register a local company (local subsidiary) or an external company (branch) if it has established a place of business in Namibia.

In the event that Namibia has entered into a double tax agreement (DTA) with the country where the foreign company resides, such entity will only be taxable in Namibia if it has established a permanent establishment (PE) in Namibia. If a PE exists, only the portion of income attributable to the PE will be subject to tax in Namibia.

Non-residents who do not have a place of business in Namibia may, however, be subject to WHTs. See the Withholding taxes section for more information.

Calculation of taxable income

Gross income The total amount, in cash or otherwise, received by or accrued to any person from a source within, or deemed to be within, Namibia, excluding receipts of a capital nature (provisions for specific inclusions in gross income and amounts deemed to be from a Namibian source exist).

Less: Exemptions The Income Tax Act provides for certain amounts to be specifically exempt from tax.

Equals: IncomeLess: Deductions Expenditures and losses actually incurred to generate income may be

deducted, provided that these expenses are not of a capital nature.The Income Tax Act specifically provides for certain expenditures to be deductible and allows a deduction for capital allowances.Only expenses incurred to generate ‘income’ may be deducted. Expenses incurred to generate income exempt from tax are not deductible. Apportionment should be considered when expenses are incurred to generate both income and exempt income.

Equals: Taxable income Taxable income is taxed at the corporate tax rate as set out under the tax rate section below.

Tax ratesThe corporate tax rates are summarised below:

Entity2016/17 tax rate

(%)Domestic companies and close corporations (excluding entities mentioned below) 32Branches of foreign companies 32Registered manufacturers (only applicable for the first ten years of registration) 18Diamond mining companies and companies that render services to such companies in connection with diamond mining

55

Mining companies (other than diamond mining companies) and companies that render services to such companies in connection with mining

37.5

Long-term insurers (the rate is applied to gross investment income) 12.8Petroleum income tax rate 35



Local income taxesNamibia does not levy income taxes at the local, state, or provincial levels.

Corporate residence

The Namibian tax system is based on source and not on residency. Income derived or deemed to be derived from sources within Namibia are subject to tax.

The source is determined as the place where income originates or is earned, not the place of payment. If goods are sold pursuant to a contract entered into within Namibia, the source of income is deemed to arise in Namibia, regardless of the place of delivery or transfer of title.

Certain types of income arising outside Namibia may, in the hands of a domestic company, be deemed to arise in Namibia and be taxed as such. Examples are interest and certain copyright royalties arising outside Namibia.

Permanent establishment (PE)The term ‘permanent establishment’ is not defined or recognised in the Income Tax Act, but it is included in all DTAs concluded with Namibia.

A PE includes a fixed place of business. The establishment of a local entity or branch will usually create a PE, although the provisions of the related tax treaty should be considered.

Except for the PE concept embodied in the tax treaties and WHT on service provisions, corporate residence is of little tax significance since transactions are taxed on a source basis.

For the list of DTAs, please see the Withholding taxes section.

Other taxes

Value-added tax (VAT)VAT is a transaction tax, and the implications will vary for different transactions. Some transactions are taxed at a rate of 15% or 0% while other transactions are exempt from VAT. Input tax deductions may be claimed, subject to certain provisions.

VAT is levied on every taxable supply by a registered person. A taxable supply means any supply of goods or services in the course or furtherance of a taxable activity. A taxable activity means any activity that is carried on continuously or regularly in Namibia that involves the supply of goods or services for consideration.

VAT is payable on all imports for home consumption in Namibia, subject to certain exemptions (e.g. in terms of a technical assistance agreement, donations to the state, goods of which the local supply is zero-rated).

Import VAT is payable on the greater of the free on board (FOB) value plus 10% or the market value. The payment may be deferred in terms of an import VAT account registered with the Directorate of Inland Revenue to the 20th day of the month following the month of importation. Penalties of 10% per month or part of a month and



20% interest on outstanding import VAT, according to the Customs Asycuda reports on import VAT account numbers, are levied by the Directorate of Inland Revenue.

A company/branch is required to register for VAT if it supplies goods or services on a regular basis for consideration and if its taxable supplies (standard rated and zero-rated supplies) exceed NAD 500,000 in any 12-month period.

The Value-added Tax Act, 2000 (as amended) also makes provision for voluntary VAT registration, provided that taxable supplies exceeded or will exceed NAD 200,000 in any 12-month period and the applicant is in good tax standing, has a fixed place of business, and will keep acceptable accounting records.

A registered VAT vendor is entitled to deduct input tax credits paid in the course of taxable supplies made to such person, provided that a tax invoice is available to support the input tax deduction. It is also important to take note of deemed input tax deductions and prohibited input deductions. Import VAT paid may be deducted only as input tax if the import was in furtherance of a taxable activity and the required documentation (e.g. stamped customs entries) is held by the importer.

VAT returns are due within 25 days following the month to which the VAT relates.

The Inland Revenue system automatically selects VAT periods for audits. An audit will focus on deposits made into bank statements and whether VAT was charged as required. It will also focus on whether tax invoices meet the criteria as set out in the VAT Act.

Shareholders of companies and members of close corporations may be held liable jointly or severally for VAT debts of the company or close corporation.

Customs and excise dutiesNamibia is a member of the Southern African Customs Union (SACU), and customs duties are not levied on intra-SACU trade (i.e. between Botswana, Lesotho, Namibia, South Africa, and Swaziland).

Customs duties are payable according to the Common Customs Tariff of SACU on imports from outside SACU. Preferential duty rates apply on imports from Southern African Development Community (SADC) countries, while goods may be imported free of customs duties from Zimbabwe in terms of the Namibia-Zimbabwe Free Trade Agreement.

Excise duties are levied on local production of excisable products (e.g. cigarettes, liquor, fuel) and are included on most excisable products imported from another SACU country in terms of the duty at source procedures. Identical excise duty rates are applied throughout the SACU. Importation of excisable products from outside the SACU is subject to customs duties and specific customs duties.

Current specific excise/customs duty rates for the above-mentioned products are as follows:

• Cigarettes: NAD 7.15/10 cigarettes.• Beer: NAD 86.39/litre absolute alcohol (AA).• Spirits (whisky, rum, brandy, gin, vodka, etc.): NAD 175.19/litre AA.• Petrol: 3.909 cents/litre.



• Diesel and biodiesel: 3.817 cents/litre.• Illuminating kerosene (paraffin): 3.817 cents/litre.

Ad valorem excise/customs duties are levied on certain products (e.g. motor vehicles, perfumes) in addition to the normal customs duties.

Ad valorem excise/customs duty rates are as follows for the above-mentioned goods:

• Motor vehicles: ([0.00003 x A] - 0.75)%, with a maximum of 25%, where ‘A’ is the recommended retail price, exclusive of VAT.

• Perfumes: 7%.

Customs fuel levies are payable on petrol, diesel, and illuminating kerosene. The current customs fuel levies are as follows:

• Petrol: NAD 0.12/litre.• Diesel: NAD 0.10/litre.• Illuminating kerosene (paraffin): NAD 0.47/litre.

Fuel levies payable to the Namibian Road Fund Administration (RFA) may be claimed back for certain non-road operations (e.g. mining, farming, construction) under certain conditions (e.g. 81.7 Namibian cents of the current RFA fuel levy of 104 Namibian cents used in mining operations may be claimed back from the RFA).

Surety in the form of a provisional payment, bank, or insurance guarantee is required by Customs on most temporary imports to cover import VAT and customs duties (if applicable).

It is possible to import goods that are subject to customs duties into registered Customs’ bonded warehouses, where goods are kept for later use. In this case, the payment of duties may be deferred until the goods are taken out of the bonded warehouse for home consumption or acquitted if the goods are subsequently exported.

Namibia has introduced the AsycudaWorld customs clearing system, which is a web-based, Java-enabled system enabled at most points of entry. All land border posts, airports, and harbours are now linked to the AsycudaWorld system.

Property taxesProperty taxes are levied by municipalities based on municipal valuations of properties.

Transfer dutyTransfer duty is payable at 12% of the acquisition value where property is acquired by non-natural persons (a sliding scale applies to property purchases by natural persons). While it is normally payable by the buyer, the agreement for the sale of the property may determine the person liable to pay these costs.

Amendments to the Transfer Duty Act were proposed to include transfer duty on the sales of shares/members interest in property/mining right-owning entities. These amendments have not been enacted or promulgated per the Government Gazette.

Stamp dutyCertain transactions may attract stamp duty. The amount of stamp duty payable differs and is based on the nature of every individual transaction.



The basic transactions can be summarised as follows:

Transaction Stamp dutyAgreements or contracts (other than those where duty is specifically provided for in the Act)

NAD 5

Lease agreement or lease The stamp duty will be based on lease payments, together with additional considerations specified in the lease agreement

Transfer or issue of marketable securities and other share transactions

NAD 2 for every NAD 1,000 or part thereof of the value/consideration, depending on the specific transaction

Transfer deed relating to immovable property purchased

NAD 12 for every NAD 1,000 or part thereof of the value/consideration, depending on the specific transaction

Additional stamp duty of NAD 5 for every NAD 1,000 of debt secured is payable on the registration of a bond over immovable property.

Annual dutyAnnual duty is levied in terms of the Companies Act at an amount of NAD 4 for every NAD 10,000 (or part thereof) of the issued share capital of a company, with a minimum duty of NAD 80 per annum. Issued share capital includes ordinary shares, share premium, and preference shares.

Since a branch does not issue share capital, the issued share capital of the head office will be used to calculate the annual duty payable in Namibia.

Payroll taxesAny remuneration paid by an employer to an employee will place an obligation on the employer to withhold employee taxes. The employee taxes are due on the 20th day of the month following the month during which the payment was made. The tax tables applicable to individuals are provided in the Taxes on personal income section of Namibia’s Individual tax summary at www.pwc.com/taxsummaries.

Late payment of employee taxes will result in penalties of 10% per month and interest of 20% per annum. Both penalties and interest are limited to the amount of tax outstanding.

Social security contributionsSocial security contributions are payable by the employer for employees working in Namibia. Social security is based on a principle of 50/50 contributions from employers and employees. It is calculated at 0.9% of earnings, with a minimum monthly contribution of NAD 2.70 and a maximum monthly contribution of NAD 81 each (i.e. the total maximum monthly contribution of both the employer and the employee will amount to NAD 162).

Workmen’s compensationUnder the Employees Compensation Act, employers are required to contribute to a fund that provides cash benefits for industrial injury, disability, and death. Contribution rates vary according to inherent occupational risk, from less than 1% in most low-risk commercial/administrative occupations to 8% for high-risk sectors (drilling, tunnelling, and rock-blasting). Employees whose annual remuneration exceeds NAD 81,300 are normally excluded from coverage.



Branch income

Branch income that is received or accrued from a source within, or deemed to be within, Namibia is taxable in Namibia based on the normal corporate tax rules.

A branch is regarded as an extension of its foreign head office. A branch may, therefore, not deduct fees paid to its foreign head office (unless a tax treaty provides for such a deduction), as it is argued that a branch cannot transact with itself. Reimbursement of actual expenses may, however, be deducted, subject to the normal deduction rules.

Transfer pricing rules apply to transactions between a branch and cross-border related parties.


Inventory valuationInventory is valued at cost for tax purposes in Namibia.

The last in first out (LIFO) basis of valuation is only accepted if:

• written consent was obtained from the Minister of Finance before such taxpayer renders one’s income tax return for the first year of assessment for which the LIFO basis was adopted by the taxpayer, and

• various conditions are met by the taxpayer as determined by the Minister of Finance.

Capital gainsOther than profits on the sale of mining and petroleum licences/rights, and the transfer of any share/interest (whether directly or indirectly) in a company owning a mineral/petroleum licence or right, capital gains are not taxed in Namibia.

Mining and Petroleum licences/rightsThe sale, donation, expropriation, cession, grant, or any other alienation or transfer of ownership of any share or member’s interest in a company that holds a mineral or petroleum licence/right, whether directly or indirectly, has been included in the definition of gross income. The definition also specifically includes a sale of shares in a company for a licence or right to mine minerals or oil and gas in Namibia.

Dividend incomeDividends received are exempt from tax. Non-resident shareholders tax (NRST) should be withheld on dividends declared to non-resident shareholders. For more information on NRST, see the Withholding taxes section.

Interest incomeNamibian companies are taxed on interest received from a Namibian source. Persons other than Namibian companies are subject to a final WHT on interest from banks and unit trusts. Interest paid to non-residents is subject to WHT on interest. For more information, see the Withholding taxes section.

Partnership incomeThe relevant partners of a partnership are regarded as the responsible taxpayers and not the partnership itself.



In practice, the assessment of a partnership is treated like that of a private business. The partnership is first treated as a business entity on its own in terms of income and expenditure. The profit or loss at the end of the year is then allocated to the individual partners. If they derived a profit from the partnership, it is added to their other non-partnership income; or if the partnership made a loss, the partners have the right to deduct it from their non-partnership income.

Rental incomeCompanies are taxed on rental income received from a Namibian source.

Royalty incomeCompanies are taxed on royalty income received from a Namibian source.

Foreign incomeCorporate tax in Namibia is determined on the source basis; consequently, only income from a Namibian source or deemed Namibian source is subject to corporate tax.

Deductions

Capital allowancesThe cost (including finance charges) of machinery, equipment, and other articles used by the taxpayer to generate income is deductible in three equal annual allowances. No apportionment is allowed where an asset is held for less than 12 months.

Buildings used by the taxpayer to generate income qualify for an initial allowance of 20% of erection costs in the year they are first brought into use. Thereafter, an annual allowance of 4% is deductible for the 20 following years. Additions to existing buildings (not alterations, improvements, or repairs) qualify for the same 20% and 4% deductions. Note that the allowance is calculated on the cost of erection and not the cost of acquisition. The allowance is also only calculated for a period of 21 years from the date of erection.

Registered manufacturers can claim 20% of the erection costs of the building in the year it is first brought into use, and 8% for ten years thereafter (see Manufacturing in the Tax credits and incentives section).

Mining exploration and initial development expenditure incurred before commencement of mining production are deductible in full in the first year that income is generated from the mine. Subsequent developmental expenditures are written off in three equal annual allowances.

Capital allowances may also be deducted with respect to patents, trademarks, leasehold improvements, etc.

A recovery or recapture of allowances previously claimed should be included in the gross income of a taxpayer in the event that the allowance is recovered or recaptured by way of disposal, withdrawal from trade for non-trade purposes, or removal from Namibia. The recapture is calculated at the market value of the asset.

GoodwillThe amortisation of goodwill is not deductible for tax purposes and should be excluded from calculating taxable income.



Start-up expenses

MiningThe Income Tax Act allows exploration and initial development expenditure to be deducted in full during the year in which the mine commences with production. All exploration expenses incurred before the commencement of mining is therefore deferred until such time that the mine commences production.

All other industriesThe general deduction formula determines that only expenses incurred in the production of income that are not of a capital nature may be claimed for tax purposes. The Income Tax Act defines income as ‘income in any year or period of assessment’.

Interest expensesA deduction is allowed in respect of financing expenditure incurred in respect of any financing agreement for the acquisition of fixed assets utilised in ordinary trade activities.

The general deduction formula determines that only expenses incurred in the production of taxable income that are not of a capital nature may be claimed for tax purposes. Therefore, where the interest can be argued to be incurred in the production of income, the interest expense will be deductible.

Thin capitalisation legislation may be applied to interest paid on cross-border, related-party loans (see Thin capitalisation in the Group taxation section).

Bad debtThe Income Tax Act allows a specific deduction for bad debts, provided that the amount written off was previously included in the taxpayer’s income.

Furthermore, the Income Tax Act prohibits the following deduction from taxable income:

“any loss or expense, the deduction of which would otherwise be allowable, to the extent to which it is recoverable under any contract of insurance, guarantee, security, or indemnity”.

Accordingly, where the bad debts are recoverable under insurance, the amounts are not deductible for tax purposes.

Charitable contributions/donationsA specific deduction for donations is allowed, provided that it is made to a registered welfare organisation or an approved educational institution. It is a further requirement that a certificate should be issued by the welfare organisation/educational institution in respect of the donation and submitted with the entity’s tax return in order for it to qualify as a deduction. However, this allowance may not create or increase a tax loss.

Fines and penaltiesIn terms of practise applied by Inland Revenue, tax penalties and fines are not deductible for tax purposes.

TaxesTaxes levied on income are not allowed as a deduction.



Net operating lossesAssessed tax losses may be carried forward indefinitely if the company continues the same trade. Tax laws do not allow losses to be transferred to other members of a group, and anti-avoidance provisions may be triggered by transactions designed to transfer or exploit assessed losses.

If a company ceases to trade for a full fiscal year, its assessed losses are forfeited, regardless of subsequent activities. Assessed losses are also reduced in the event of a compromise agreement with creditors.

Namibian tax legislation does not provide for the carrying back of tax losses.

Payments to foreign affiliatesFor information on payments to foreign affiliates, please refer to the Branch income section, Group taxation section, and Withholding taxes section.

Group taxation

No taxation of combined operations is allowed in Namibia where operations are conducted in a group.

Transfer pricingIn the recent budget speech, the Minister of Finance confirmed that enforcing transfer pricing laws are high on their agenda and that they are working with, amongst others, the Finish Revenue Authority and the African Tax Administration Forum.

Namibian transfer pricing legislation is aimed at enforcing the arm’s-length principle in cross-border transactions carried out between connected persons. It is based on guidance set out by the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for multinational enterprises and tax administrations.

The objective of the transfer pricing legislation is to provide taxpayers with guidelines regarding the procedures to be followed in the determination of arm’s-length prices, taking into account the Namibian business environment. It also sets out the Minister of Finance’s views on documentation and other practical issues that are relevant in setting and reviewing transfer pricing in international agreements.

The transfer pricing legislation is essentially aimed at ensuring that cross-border transactions between companies operating in a multinational group are fairly priced and that profits are not stripped out of Namibia and taxed in lower tax jurisdictions. The legislation achieves this by giving the Minister of Finance (who essentially delegates to the Directorate of Inland Revenue) the power to adjust any non-market related prices charged or paid by Namibian entities in cross-border transactions with related parties to arm’s-length prices and to tax the Namibian entity as if the transactions had been carried out at market-related prices.

In terms of the normal penalty provisions of the Income Tax Act, the Directorate of Inland Revenue may levy penalties of up to 200% on any amount of underpaid tax. Consequently, the Inland Revenue may invoke such provisions in the event that a taxpayer’s taxable income is understated as a result of prices that were charged in



affected transactions, which were not carried out at arm’s length. Further, interest will be charged on the unpaid amounts at 20% per annum.

Thin capitalisationThe Minister of Finance may, if any amount of financial assistance provided by a foreign connected person is excessive in relation to a company’s fixed capital (being share capital, share premium, accumulated profits, whether capital or not), disallow, for income tax purposes, the deduction of any interest or other charges payable by the Namibian person on the ‘excessive portion’ of the financial assistance provided by the foreigner.

There is no guidance that provides a definition for ‘excessive’. Therefore, each case should be considered on the basis of the facts provided. The 3:1 ratio is applied by the Bank of Namibia for exchange control purposes, and this guideline is therefore deemed suitable until otherwise determined by Inland Revenue.

Controlled foreign companies (CFCs)CFC rules are not applicable in Namibia.


Foreign tax creditA tax credit may be claimed in Namibia for foreign taxes paid on dividends, royalties, and similar income, limited to the amount of tax payable in Namibia. Proof of the taxes paid in the foreign jurisdiction should be provided to Inland Revenue in order to claim the tax credit.

ManufacturingThe following is a high-level comparison of the different tax treatments for normal companies and registered manufacturing companies. This description does not consider the specific conditions that should be met in order for these incentives to be utilised.

Note that only the building allowance and preferential tax rate (as set out below) may create or increase a tax loss.

Building allowanceA building allowance is deductible with respect to buildings used for purposes of trade.

For normal companies, the allowance is calculated as 20% of the cost of erection in the year in which the building enters service and 4% during the 20 years that follow.

For registered manufacturing companies, the allowance is calculated as 20% of the cost of erection in the year in which the building enters service and 8% during the ten years that follow.

Employee cost allowancesFor normal companies, expenditures for remuneration and training of employees are deductible for tax purposes.

For registered manufacturing companies, an additional allowance of 25% of remuneration and training of employees that are directly engaged in the manufacturing



process are deductible. However, this allowance may not create or increase a tax loss. Deductions sought for training should be approved by the government.

Export expenditure allowanceFor normal companies, export expenditures incurred are deductible for tax purposes.

For registered manufacturing companies, an additional allowance of 25% of costs incurred in an export country, in order to export Namibian manufactured goods to such country, may be deducted. However, this allowance may not create or increase a tax loss.

Export allowanceAny taxpayer (not required to be a registered manufacturer) that derives income from the export of goods manufactured in Namibia, excluding meat or fish, may deduct an export allowance equal to 80% of the taxable income derived from the export of manufactured goods.

Gross profit derived from the export of manufactured goods as a percentage of total gross profit should be used to determine the percentage of taxable income that is used to calculate the export allowance. However, this allowance may not create or increase a tax loss.

Transport allowanceFor normal companies, land-based transport costs (i.e. transport by road or rail) are deductible for tax purposes.

For registered manufacturing companies, an additional allowance of 25% of land-based transport cost in respect of material and components used in the manufacturing process or equipment imported for direct use in the manufacturing process may be deducted. However, this allowance may not create or increase a tax loss.

Preferential tax rateThe normal tax rate for companies other than mining companies or registered manufacturers is 32%.

The tax rate for a registered manufacturer for taxable income with respect to the manufacturing activity for which they are registered is 18%. This preferential rate is applicable for a period of ten years from registration as a manufacturer.

Export Processing Zones (EPZs)In order to become an EPZ company, a particular entity must register with the EPZ governing body and obtain approval from Inland Revenue.

An EPZ company qualifies for the following benefits:

• The company is exempt from corporate tax.• No VAT is payable on the sale of goods or services rendered in the zone.• No VAT is payable on goods imported or manufactured in the zone.• No customs or excise duty is payable on goods imported into the zone.• No stamp duty or transfer duty is payable in relation to the transfer of movable or

immovable property in the zone.• A 75% refund of expenditures incurred in training Namibian citizens.• Some of the provisions in the Labour Relations Act do not apply in the zone.



Enterprises must comply with the following requirements in order to qualify for EPZ status:

• Goods must be exported to countries other than countries in the SACU.• Industrial employment must be created or increased.• Namibia’s export earnings must be increased as a result of manufactured goods

exported.

EPZ companies may not be involved in retail business operations.

Withholding taxes

WHTs are applicable where certain payments are made to non-Namibian residents.

DividendsDividends declared by a Namibian company to a non-resident holding company are subject to NRST, a WHT. NRST is payable at the standard rate of 10% if at least 25% of shares are held in the Namibian company, unless DTA relief is available. Where less than 25% of shares are held in the Namibian company, the NRST payable is 20%, unless DTA relief is available.

NRST is payable within 20 days after declaration of a dividend.

InterestA WHT of 10%, calculated on the gross amount of interest, is payable on interest accruing to any person, other than a Namibian company, from a registered Namibian banking institution or unit trust scheme. The tax withheld is a final tax, and the financial institution is responsible to withhold the tax.

Namibian companies, however, are taxed on interest at the corporate tax rate.

It is the obligation of the financial institution to withhold the tax and pay such tax to the revenue authorities.

WHT of 10% is payable on the interest accruing or paid to a non-resident. The WHT is payable within 20 days after the interest payment was made. Interest is deemed to be paid on the earlier of the date on which the interest is paid or becomes due and payable.

Treaty relief may be available.

Royalties or similar paymentsWHT on royalties are payable when a Namibian company pays a royalty to a non-resident. WHT is levied at a fixed rate of 10% and is payable within 20 days after the end of the month during which the liability for payment is incurred.

A royalty includes payment for the use or right to use any patent or design, trademark, copyright, model, pattern, plan, formula, or process, or any other property or right of a similar nature. A royalty also includes the imparting of any scientific, technical, industrial, or commercial knowledge or information for use in Namibia. The nature of fees payable should therefore be carefully considered in order to determine whether



the relevant amount represents a royalty. It also include payments made for the use or right to use industrial, commercial, or scientific equipment (i.e. rentals).

Treaty relief may be available.

ServicesAny Namibian resident paying a management or consultancy fee to a non-resident must withhold tax at 10%.

Management and consulting fees are specifically defined as: “any amount payable for administrative, managerial, technical, or consultative services or any similar services, whether such services are of a professional nature or not”.

A branch is specifically included in the definition of a resident.

The rate is subject to DTA relief, where applicable.

Fees paid to non-resident directors and foreign entertainers are subject to WHT of 25%, effective 21 June 2016. No treaty relief is available.

Summary of WHT payableThe WHT rates and treaty relief for Namibian DTAs can be summarised as follows. Note that the tax treaties contain certain requirements that should be met before the reduced tax rate may be applied.

The definitions of dividends, interest, and royalties in the various treaties should also be considered.

RecipientWHT (%)

Dividends Interest Royalties Management, administrative, technical, and consulting fees

Directors fees (8)

Non-treaty 10/20 (1) 10 (2) 10 10 25Treaty:Botswana 10 10 10 10 (7) 25France 5/15 (3) 10 10 0 25Germany 10/15 (3) 0 10 0 25India 10 10 10 10 25Malaysia 5/10 (1) 10 5 5 25Mauritius 5/10 (1) 10 5 0 25Romania 10 to 15 (4) 10 5 0 25Russian Federation 5/10 (5) 10 5 0 25South Africa 5/15 (1) 10 10 0 25Sweden 5/15 (3) 10 5 10 (7) 25United Kingdom 5/10/15 (6) N/A 5 0 25

Notes

1. Lower rate applies where at least 25% of shares are held in the Namibian company. Higher rate applies otherwise.

2. Namibian companies are taxed at the corporate tax rate on interest received.3. Lower rate applies where at least 10% of shares are held in the Namibian company. Higher rate applies

otherwise.4. Rate depends on shareholding.



5. Lower rate applies where at least 25% of shares are held in the Namibian company and recipient directly invested at least 100,000 United States dollars (USD) in the equity capital of the company paying the dividend. Higher rate applies otherwise.

6. 5% where at least 50% of shares are held in the Namibian company. 10% where at least 25% of shares are held in the Namibian company. 15% otherwise.

7. Local rates are lower than the 15% rate per the treaty.8. The WHT rate for director’s fees increased to 25% (effective 21 June 2016).

Mining royaltiesThe Minerals (Prospecting and Mining) Act levies a royalty on minerals won or mined by a licence holder in Namibia, based on the table below:

Group of minerals Market value of minerals levied as a royalty (%)Precious metals 3Base and rare metals 3Semi-precious stones 2Nuclear fuel minerals 3Industrial minerals 2Non-nuclear fuel minerals 2Oil and gas 5

Source: www.chamberofmines.org.na/index.php/mining-tax-regime

Tax administration

Taxable periodThe tax year for companies and close corporations is aligned with the financial year.

Tax returnsThe income tax return is due within seven months after the financial year-end of the company and can be extended to five months after the seventh month due date, provided that no other prior year income tax returns are outstanding.

Payment of taxThe first provisional payment for income tax is due within six months from the commencement of the company’s financial year (at least 40% of tax payable at year-end is paid on first submission). The second provisional payment is due on/before the last day of the respective tax year (at least 80% of tax payable at year-end is paid on second submission). The final provisional payment is due within seven months after the financial year-end of the company.

WHT on dividends are due within 20 days after declaration of the dividend.

WHT on royalties or similar payments are due within 20 days after the end of the month during which the liability for payment of the royalty was incurred.

WHT on services is payable to Inland Revenue within 20 days after the end of the month during which the amount was deducted or withheld.

WHT on interest is due within 20 days after the end of the month during which the interest was paid. Interest is deemed to be paid on the earlier of actual payment or when the interest becomes due and payable.



It is advised that if relief is available under the DTA, a nil form should still be submitted when payment is made to non-residents. The amount of DTA relief claimed should be disclosed on the form submitted.

The Namibian Revenue authorities are in the process of phasing out payments made by cheque. Effective 1 June 2017, no cheques will be accepted as a means of payment at Inland Revenue.

Penalties and interestThe penalties and interest due for late submissions and payments can be summarised as follows:

Tax area Reason PenaltyInterest

(per annum)

1st provisional tax

Late submission NAD 100 per day penalty for outstanding provisional tax

returns

None

Late payment 10% per month * 20%*Under-estimation Up to 100% of underpaid

amountNone

2nd provisional tax

Late submission NAD 100 per day penalty for outstanding provisional tax

returns

None

Late payment 10% per month * 20%Under-estimation Up to 100% of underpaid

amountNone

Income tax return

Late submission 10% one-off penalty if taxes were paid late

None

Late payment Where tax return is submitted late, then 10%

once-off penalty

20%

Omission/incorrect statement Up to 200% 20%WHT Late payment 10% per month * 20%

* Both penalties and interest are limited to the amount of taxes outstanding.

Anti-avoidanceNote that the Income Tax Act, Act 24 of 1981, contains an anti-avoidance section, Section 95, which enables the Receiver of Revenue to disregard the implications of a transaction or scheme if it can be proven that:

• such transaction or scheme had been entered into to avoid or postpone the payment of any duty or levy imposed by the Act

• such transaction or scheme was entered into or carried out by means or in a manner that would not normally be employed in the entering into or carrying out of a transaction, operation, or scheme of the nature of the transaction, operation, or scheme in question, or has created rights or obligations that would not normally be created between persons dealing at arm’s length under a transaction, operation, or scheme of the nature of the transaction, operation, or scheme in question, and

• such transaction or scheme was entered into or carried out solely or mainly for the purposes of the avoidance or the postponement of liability for the payment of any tax duty or levy.



The Receiver of Revenue can, at its sole discretion, impose Section 95 on any transaction or scheme, which will place the onus on the taxpayer to prove that any/all of the requirements noted above will not be applicable to the transaction or scheme.

Tax audit processThe tax audit process is a discretionary process instituted by Inland Revenue. Inland Revenue will inspect the validity of invoices and whether such expenses are deductible for tax purposes.

Generally, income tax audits are initiated on amounts being refunded to taxpayers, with the focus being on high-value refunds.

Subsequent to an audit, a letter will be sent to the taxpayer indicating changes made to the return of income.

In the event that the taxpayer agrees with the outcome, an assessment is issued. Where the taxpayer is not satisfied with the outcome, an objection may be lodged within 90 days.

Statute of limitationsThere is no statute of limitation in respect of claiming a refund for excess income tax paid. Debts to the state prescribe after 30 years.

Topics of focus for tax authorityTopics of focus for the tax authority include import VAT, general compliance, transfer pricing, payment of subsistence and travel allowances to employees, and employee taxes.

Nigeria 287www.pwc.com/taxsummaries

Nigeria

PwC contact

Taiwo OyedelePricewaterhouseCoopersLandmark Towers5B, Water Corporation RoadVictoria IslandLagosNigeriaTel: +234 1 271 1700 ext. 50002Email: [email protected]


A new list of pioneer industries and products has been approvedThe federal government of Nigeria embarked on a review of the pioneer incentive scheme in order to address identified lapses, abuses, and loopholes. Under the scheme, eligible companies are exempted from corporate income tax (CIT) for three years, which may be extended for an additional one or two years. The Ministry of Industry, Trade, and Investment has now released a list of only 44 industries and products that are eligible for the pioneer status. Irrespective of the introduction of the new list, the Federal Executive Council is reviewing the pioneer incentive and has suspended all pending applications for the incentive. It is not clear how long this suspension will last before the regulator is allowed to consider new and pending applications.

Stamp duties payable on banking transactionsThe Central Bank of Nigeria has directed all deposit money banks and financial institutions to commence the charging of 50 Nigerian naira (NGN) on all receipts issued as an acknowledgement of banking transactions on electronic transfers and teller deposits of NGN 1,000 and above.

In April 2016, the Court of Appeal (COA) ruled that receipts given for money deposited in the bank were exempt from stamp duties. The COA also ruled that electronic funds transfers and teller deposits were not receipts on which stamp duty should be charged. The stamp duties, however, continue to be collected by the banks despite the ruling of the COA.

Tax audits and the use of tax consultantsIn a bid to increase tax revenue collection at the national level, the Federal Inland Revenue Service (FIRS) has commenced the use of tax consultants, subject to certain restrictions (e.g. conflict of interest), in carrying out tax audits to complement existing internal capacity of the FIRS. The legality of this move has not yet been challenged in the courts.

Taxpayer relationship management unitThe FIRS, in a bid to foster a better business relationship between itself and corporate entities, has created a taxpayer relationship management unit. The unit has been created under the Office of the Executive Chairman to ensure seamless service delivery to taxpayers. The focus of this initiative is to ensure and encourage voluntary compliance, prompt payment, and quick resolution of all tax matters relating to companies.

PwC Worldwide Tax SummariesNigeria288

Nigeria

Reformation of the tax clearance certificate (TCC) processThe FIRS, in a bid to improve efficiency and effectiveness in the issuance of TCCs, issued a public notice stating its obligation to issue TCCs to qualifying taxpayers not later than two weeks from the date of application. Applicants for a TCC must be registered with valid tax identification number and must have filed necessary returns to date, including CIT and value-added tax (VAT). The TCC issued by the FIRS confirms to the holder that all tax liabilities established either by self-assessment or government assessment up to the immediate past year have been settled by the taxpayer.

Review of the Common External Tariff (CET) under the 2016 Fiscal Policy MeasuresThe federal government has approved the implementation of the Fiscal Policy Measures (the ‘Policy’), 2016. The Policy comprises of the following:

• An Import Adjustment Tax (IAT) list with additional taxes on 173 tariff lines of the Economic Community of West African States (ECOWAS) CET 2015 - 2019.

• A national list consisting of 91 items with reduced import duty rates aimed at promoting the development of sectors deemed critical to the economy.

• An import prohibition list comprising of 23 items applicable only to goods originating from non-ECOWAS member states.

Withholding tax (WHT) rate on building and construction contracts reversed from 2.5% to 5%The Minister of Finance has approved the reversion of the WHT rate of 5% on all aspects of building, construction, and related activities. The approval was given via an official gazette dated 23 November 2016.

This gazette revokes the previous regulation issued by the immediate past government in 2015, which reduced the WHT rate on such related transactions from 5% to 2.5%.

The effective date for compliance with the reversed rate is 9 November 2016.


Resident companies are liable to CIT on their worldwide income while non-residents are subject to CIT on their Nigeria-source income.

The CIT rate is 30%, assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment).

Investment income paid by a Nigerian resident to a non-resident is sourced in Nigeria and subject to WHT at source, which serves as the final tax.

In respect of business profits, a non-resident company that has a fixed base or a permanent establishment (PE) in Nigeria is taxable on the profits attributable to that fixed based. As such, it is required to register for CIT and file its tax returns. Any WHT deducted at source from its Nigeria-source income is available as offset against the CIT liability.


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Small company ratesFor small companies in the manufacturing industry and wholly export-oriented companies with turnover not exceeding NGN 1 million, the CIT rate is reduced to 20% in the first five calendar years of operation.

Petroleum profit tax (PPT)PPT is a tax on the income of companies engaged in upstream petroleum operations in lieu of CIT.

The PPT rates vary as follows:

• 50% for petroleum operations under production sharing contracts (PSC) with the Nigerian National Petroleum Corporation (NNPC).

• 65.75% for non-PSC operations, including joint ventures (JVs), in the first five years during which the company has not fully amortised all pre-production capitalised expenditure.

• 85% for non-PSC operations after the first five years.

Tertiary education taxTertiary education tax is imposed on every Nigerian resident company at the rate of 2% of the assessable profit for each year of assessment. The tax is payable within two months of an assessment notice from the FIRS. In practice, many companies pay the tax on a self-assessment basis along with their CIT.

For companies subject to PPT, tertiary education tax is to be treated as an allowable deduction. For other companies, income/profit taxes are not deductible in arriving at taxable income. Non-resident companies and unincorporated entities are exempt from tertiary education tax.

Minimum taxMinimum tax is payable by companies having no taxable profits for the year or where the tax on profits is below the minimum tax. However, companies in the first four calendar years of business, companies engaged in the agriculture business, or companies that have foreign equity capital of at least 25% are exempt from minimum tax.

Minimum tax payable is calculated as follows:

• Where the turnover of the company is NGN 500,000 or below, minimum tax is the highest of:• 0.5% of gross profits• 0.5% of net assets• 0.25% of paid-up capital, or• 0.25% of turnover of the company for the year.

• Where the turnover is higher than NGN 500,000, minimum tax is the highest of the calculations listed above plus 0.125% of turnover in excess of NGN 500,000.

Alternative tax on distributionThere is a tax on distribution where a company pays a dividend in excess of its taxable profit. Such a company will be charged tax on the dividend paid as if the dividend is the taxable profit of the company for that year of assessment.


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Enforcement of advance CIT on interim dividendsThe new leadership at the FIRS has commenced the strict enforcement of advance CIT on interim dividends. Companies that declare interim dividends are required by the law to be subject to advance CIT at 30% of the interim dividend paid. The advance CIT is creditable against the final CIT computed at the end of the year.

Alternative tax on deemed profitThe law allows the FIRS to assess and charge companies to tax on a fair and reasonable percentage of turnover under the following circumstances:

• When the trade or business produces no assessable profits.• When the trade or business produces assessable profits that, in the opinion of

the Board of the FIRS, are less than might be expected to arise from that trade or business.

• When the true amount of the assessable profits of the company cannot be ascertained.

Local income taxesCIT is payable only to the federal government. State governments collect income taxes of individuals and unincorporated entities, while local governments are only allowed to collect levies and rates but not income tax.

Corporate residence

A company is considered resident in Nigeria if such a company is registered or incorporated under the Companies and Allied Matters Act. This means that a company formed outside Nigeria under the laws in force in the foreign territory will be considered as a non-resident company for CIT purposes.

Permanent establishment (PE)Fixed base is not defined but is generally considered to be a location with a degree of permanence. The following would generally not be considered to be a fixed base:

• The use of facilities solely for the purpose of storage or display of goods or merchandise.

• The use of facilities solely for the collection of information.

Other activities that could trigger a tax presence in Nigeria include a dependent agency arrangement, execution of a turnkey project, or artificial arrangements between related parties.

Other taxes

Value-added tax (VAT)The standard VAT rate is 5%. The government has confirmed that this rate will not change in 2017.

Zero-rated items include non-oil exports, goods and services purchased by diplomats, and goods and services purchased for use in humanitarian donor-funded projects. Exempt items include plants and machinery for use in export processing zones (EPZs) or free trade zones (FTZs), basic food items, medical products and services,


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pharmaceutical products, books and educational materials, and exported services. Commissions on stock market transactions are also exempted from VAT.

Government agencies and oil and gas companies are required to deduct at source VAT charged by their suppliers and remit it to the tax authority. All other organisations are required to collect VAT charged on their invoices from their customers for filing and payment to the tax authority.

The FIRS has implemented a platform for auto tracking and remittance of VAT known as FIRS VAT-Collect. Some of the users of the system are domestic airlines (for instant remittance of VAT on their ticket sales) and other retailers.

Customs dutiesCustoms duties in Nigeria are levied only on imports. Rates vary for different items, typically from 5% to 35%, and are assessed with reference to the prevailing Harmonized Commodity and Coding System (HS code).

Excise dutiesExcise duty is applicable on beer and stout, wines, spirits, cigarettes, and homogenised tobacco manufactured in or imported into Nigeria at 20%.

Property taxesProperty taxes in Nigeria are usually levied annually by the state government with varying rates depending on the state and the location of the property within the state. The two major property taxes are governor’s consent fee and land registration fee. In Lagos (which is the economic hub of Nigeria), governor’s consent fee, land registration fees, and other levies payable to the state give rise to a total levy of 3% of the fair value of the land.

Also, Right of Occupancy fee and tenement rates are chargeable by state and local government authorities.

Stamp dutiesUnder the Stamp Duty Act, stamp duty is payable on any agreement executed in Nigeria, or relating, whatsoever, to any property situated in or to any matter or thing done in Nigeria. Instruments that are required to be stamped under the Stamp Duties Act must be stamped within 40 days of first execution.

Stamp duty is chargeable either at fixed rates or ad valorem (i.e. in proportion to the value of the consideration), depending on the class of instrument. Stamp duty is imposed at the rate of 0.75% on the authorised share capital at incorporation of a company or on registration of new shares.

All deposit banks and financial institutions are required to charge stamp duties of NGN 50 on every eligible transaction above NGN 1,000. There are exemptions for transactions between accounts held by the same bank customer and for salary accounts.

Capital gains tax (CGT)Gains accruing to a chargeable person (individual or company) on the disposal of chargeable assets shall be subject to tax under the CGT Act at the rate of 10%. There is no distinction between long-term and short-term gains and no inflation adjustment to cost for CGT purposes.


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All forms of assets, including options, debts, goodwill, and foreign currency, other than those specifically exempt, are liable for CGT. The gains on the disposal of shares are exempt from CGT.

CGT is applicable on the chargeable gains received or brought into Nigeria in respect of assets situated outside Nigeria.

Capital losses are not allowed as an offset against chargeable gains accruing to a person from the disposal of any assets.

Payroll taxes

Payroll contributionUnder the Employee Compensation Act, all employers were required to contribute 1% of their payroll cost in the first two years of commencement of the Act (2010 to 2012). Subsequently, assessments were expected to be issued by the Nigeria Social Insurance Trust Fund, the body empowered to administer and implement the Act. In practice, a contribution of 1% of payroll continues to apply.

Pension contributionsEmployers with at least 15 employees are required to participate in a contributory pension scheme for their employees. The minimum contribution is 18% of monthly emolument (with a minimum contribution of 10% by the employer and 8% by the employee). If the employer decides to bear all the contribution, the minimum contribution is 20% of monthly emolument. Mandatory and/or voluntary contributions by the employers are deductible for CIT purposes.

National Housing Fund (NHF) contributionsNHF contributions are applicable to Nigerian employees earning a minimum of NGN 3,000 per annum. The employer is required to deduct 2.5% of basic salary from employees earning more than NGN 3,000 per annum and remit it to the Federal Mortgage Bank of Nigeria within one month of deduction.

Information technology levyA company with an annual turnover of NGN 100 million or more is required to pay 1% of its profit before CIT as information technology tax. This levy is deductible for CIT purposes when paid (typically in the year of assessment following that in which the payment was made).

This tax is applicable to:

• Banking and other financial activities, including capital and money market operators, mortgage institutions, and micro-finance banks.

• Insurance activities, including brokerage.• Pension fund administration, pension management, and related services.• GSM service providers and telecommunication companies.• Cyber and internet services providers.

Levy on contracts awarded in the upstream oil and gas sectorThe Nigerian Content Development Act was introduced to increase the level of Nigerian participation in the oil and gas industry. The Act imposes a levy of 1% on every contract awarded in the upstream oil and gas sector of the economy. Any violation of the Act is


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liable for a fine of 5% of the contract value and may result in outright cancellation of the contract.

Branch income

Except in rare circumstances, it is illegal for a non-resident company to operate through a branch in Nigeria. The Nigeria-source income of a non-resident company is taxable at the CIT rate of 30% (see the Taxes on corporate income section for more information).


The following income is subject to CIT in Nigeria:

• Profits accruing in, derived from, brought into, or received in Nigeria in respect of any trade or business.

• Dividends, interest, royalties, discounts, charges, or annuities.• Rent or any premium arising from the right granted to any person for the use or

occupation of any property, where applicable.• Any source of annual profits or gain not falling within the preceding categories.• Fees, dues, and allowances (wherever paid) for services rendered.• Any amount of profits or gains arising from the acquisition or disposal of short-term

money instruments like federal government securities, treasury bills, treasury or savings certificates, debenture certificates, and treasury bonds.

Inventory valuationThe first in first out (FIFO) valuation method is commonly used. Average and standard cost methods are also allowed, but last in first out (LIFO) is not permitted. Other than the accounting requirement in the local generally accepted accounting principles (GAAP), there are no special statutory provisions for inventory valuation.

Capital gainsCapital gains are not subject to CIT, but may be subject to CGT. See Capital gains tax in the Other taxes section for more information.

Dividend incomeDividends received by a Nigerian resident company from another Nigerian resident company are taxable at source (see the Withholding taxes section for more information) and not subject to further tax.

Dividends received from non-resident companies are taxable except if repatriated into Nigeria through government-approved channels (i.e. any financial institution authorised by the Central Bank of Nigeria to deal in foreign currency transactions).

Dividends received from small manufacturing companies are exempt for CIT purposes during the first five years of operation. Dividends from investments in wholly export-oriented businesses are also exempt.

Stock dividendsStock dividends (bonus shares) are not taxable at source or included in the taxable income of the recipient company.


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Interest incomeInterest payable to a non-resident investor is liable to WHT at 10%, which is the final tax. Recipients who are resident in a country with a double tax treaty (DTT) with Nigeria enjoy a reduced rate of 7.5%. Interest received by a Nigerian company is liable to tax at the CIT rate of 30% with tax withheld at 10% available as an offset against the final tax liability.

Interest on government bonds is tax exempt. Interest on foreign currency domiciliary accounts is also exempt.

Royalty incomeRoyalties received by a Nigerian company are liable to tax at the CIT rate of 30%. WHT at 10% is available as an offset against the final CIT liability.

Royalties received by a Nigerian company from non-resident payers are taxable except if repatriated into Nigeria through government-approved channels.

Non-resident companies who receive Nigerian royalties are subject only to WHT at 10%, which is reduced to 7.5% if a treaty is in place with Nigeria.

Other significant itemsThe following entities’ income or profit is exempt for CIT purposes:

• Statutory or registered friendly societies.• Co-operative societies registered under any ecclesiastical, charitable, or education

establishments of a public character.• Profit of a company established within an EPZ or FTZ (see the Tax credits and

incentives section).• Profit of a registered trade union.• Export profits, as long as proceeds are brought into Nigeria through government-

approved channels and invested in raw materials, spare parts, and plant and machinery (see Export incentives in the Tax credits and incentives section).

Foreign incomeA Nigerian resident company is taxable on its worldwide income. On the other hand, a non-resident company is subject to tax only on income derived from Nigeria.

Dividends, interest, rents, and royalties earned abroad and brought into Nigeria through government-approved channels are exempt from Nigerian tax; otherwise, the income is taxable at the CIT rate of 30% and tertiary education tax at 2%. Government-approved channels mean the Central Bank of Nigeria and any bank or financial institution authorised to carry out foreign exchange transactions.

Taxable foreign income earned by a Nigerian tax resident entity cannot be legally deferred.

Deductions

Expenses are deductible for CIT purposes if they are wholly, reasonably, exclusively, and necessarily incurred for the business or trade.


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DepreciationCapital allowances are calculated on a straight-line basis. Capital allowances claimable in any year are restricted to two-thirds of assessable profits for all companies, except companies in the manufacturing and agricultural sectors, which are excluded from this restriction.

The following are the capital allowance rates on fixed assets (qualifying expenditures):

Qualifying expenditure Initial allowance (%) Annual allowance (%)Building (industrial and non-industrial) 15 10Furniture and fittings 25 20Plant expenditure (1) 50/95 0/25Mining expenditure 95 0Plantation equipment 95 0Motor vehicle (2) 50/95 0/25Ranching and plantation expenditure 30 50Housing estate expenditure 50 25Research and development (R&D) 95 0

Notes

1. 95% initial allowance for plant used in agricultural production; others 50%.2. 95% initial allowance is granted for motor vehicles used for public transportation if the company has a

fleet of at least three buses; all other motor vehicles 50%.

The initial allowance is first deducted, and the balance is written off on a straight-line basis over a fixed period, depending on the rates of annual allowance. There is a requirement that assets not yet disposed of cannot be fully written off in the books. A nominal amount of NGN 10 per asset must be retained in the books till the assets are disposed of. However, where 95% has been claimed as an initial allowance, the 5% balance is the value that must be maintained in the books until the final disposal of the asset.

When assets are sold, the proceeds over the tax written-down value are taxed at 30% to the extent of the allowances already claimed.

GoodwillThere is no tax deduction for goodwill.

Start-up expensesStart-up expenses are not specifically stated as non-deductible in the tax law, but, in practice, they are usually not allowed by the tax authority. This is based on the assumption that start-up expenses are not directly attributable to any taxable income of the company, which is a fundamental condition for tax deductibility of expenses.

Interest expenseInterest on money borrowed and employed in producing taxable income is a deductible expense. There is currently no thin capitalisation regulation in Nigeria, but general anti-avoidance rules are usually applied to limit deductible interest on related-party loans.

Bad debtBad debt incurred in the course of trade is deductible.


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Charitable contributionsDonations are deductible, subject to the provisions of the law.

Fines and penaltiesAny punitive payments for default or violation of law are expressly not deductible for CIT purposes. In practice, this is usually extended to include default surcharges and other avoidable fines.

TaxesAny tax on income or profit is not deductible except where such tax was paid on profit earned outside Nigeria. In this case, if the source country has no DTT with Nigeria, the foreign tax paid is allowed as a deduction for CIT purposes. State and local taxes (business rates) and levies may be deducted from taxable income.

Other significant itemsOther deductible expenses include the following:

• Sum payable by way of interest on capital borrowed.• Rent for the period.• Expenses incurred in respect of salary and wages.• Expenses incurred for repair of assets.• Liability incurred for purpose of trade.• R&D costs.

Net operating lossesLosses can be carried forward indefinitely, except for insurance companies where losses can only be carried forward for four years. Losses made from one line of business cannot be relieved against another line of business. Losses cannot be carried back.

Payments to foreign affiliatesPayments considered to be artificial are not deductible for CIT purposes. Royalties, management fees, and technical fees require the approval of the National Office for Technology Acquisition and Promotion (NOTAP) for exchange control purposes and for tax deduction. NOTAP-approved royalties and technical fees are limited to a range of 1% to 5% of net sales, while management fees are limited to a range of 2% to 5% of profit before tax, and consultancy fees are limited to 5% of total project cost. Technical fees are limited to approved man-hour rates.

Trademark fees are disallowed where the trademark owner has more than 75% equity participation in the local company.

Group taxation

There are currently no provisions for group taxation, group relief, or group filing of tax returns in Nigeria. Each legal entity within a group is treated as distinct and separate for CIT purposes.

Transfer pricingThe transfer pricing regulations are applied in a manner consistent with the arm’s-length principle in Article 9 of the United Nations (UN) and Organisation for Economic Co-operation and Development (OECD) Model Tax Conventions on Income and Capital; and the OECD Transfer Pricing Guidelines for Multi-national Enterprises and


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Tax Administrations. However, where there are inconsistencies between the model conventions and the local legislation, the provisions of the relevant local tax laws shall prevail.

The rules cover all transactions between ‘connected taxable persons’, which is broadly defined to include individuals, PEs created by head offices, subsidiaries, associates, partnerships, joint ventures, and trusts to the extent that they participate directly or indirectly in the management, control, or capital of another, or both of which have common control, management, or shareholders. Specifically, the rules apply to sale and purchase of goods; lease or sale of tangible assets; licensing, transfer, or use of intangible assets; provision of services; lending or borrowing of money; manufacturing arrangements; and any transaction that may affect profit and loss or any other incidental matter.

The rules are applicable to both domestic and cross-border related-party transactions.

Thin capitalisationNigeria has no thin capitalisation rules. However, interest charged between related parties is expected to reflect arm’s-length transactions. The tax authority may disallow any related-party interest considered to be excessive.

Note that the tax authorities are currently considering introducing a formal thin capitalisation rule with a likely 3:1 debt-to-equity ratio.

Controlled foreign companies (CFCs)There are no specific CFC rules in Nigeria.


Nigeria has various tax incentives intended to encourage investment in key sectors of the economy, as follows.

Tax holidaysPioneer companies investing in specified industrial activities may, on application, be granted a tax holiday for three years initially, which may be extended for up to two years upon satisfaction of specified conditions. Examples of economic activities that may be granted a tax holiday include glass and glassware manufacturing, manufacturing of fertilisers, and steel manufacturing.

A new company that engages in the mining of solid minerals is exempt from tax for the first three years of its operation.

Rural location incentivesCertain incentives are available to companies located in rural areas. The incentives take the form of tax reductions at graduated rates for enterprises located at least 20 kilometres from available electricity, water, and tarred roads.

Export incentivesExport processing zones (EPZs) and free trade zones (FTZs) are locations within Nigeria designated by the government as free areas where export trade activities can be carried on free of tax and foreign exchange restrictions.


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A company that is engaged in an approved manufacturing activity in an EPZ and incurs expenditures in its qualifying building and plant equipment is entitled to 100% capital allowance in that year of assessment.

In addition, a company that is 100% export oriented but located outside an EPZ will enjoy a three year tax holiday, provided the company is not formed by splitting up or reconstruction of an already existing business and the export proceeds form at least 75% of its turnover.

Profits of companies whose supplies are exclusively inputs to the manufacture of products for export are exempt from tax. Such companies are expected to obtain a certificate of purchase of the input from the exporter in order to claim tax exemption.

Where plant and machinery are transferred to a new company, the tax written down value of the asset transferred must not exceed 25% of the total value of plant and machinery in the new company. The company should also repatriate at least 75% of the export earnings to Nigeria and place it in a Nigerian domiciliary account in order to qualify for a tax holiday.

Profits of any Nigerian company in respect of goods exported from Nigeria are exempt from tax, provided that the proceeds from such exports are repatriated to Nigeria and are used exclusively for the purchase of raw materials, plant, equipment, and spare parts.

In order to streamline the administration of permissible taxes within the tax free zones, the Oil and Gas Free Zone Authority (OGFZA) has established the Free Zones Tax Administration (FZTA) Unit with effect from January 2015. Going forward, all tax matters relating to the free zones will be coordinated by the FZTA.

Gas utilisation incentivesCompanies engaged in gas utilisation are entitled to:

• A tax-free period for up to five years.• Accelerated capital allowance after the tax-free period.• Tax-free dividends during the tax-free period.

Tourism incentives25% of the income derived from tourism by hotels in convertible currencies is exempt from tax if such income is put in a reserve fund to be utilised within five years for expansion or construction of new hotels and other facilities for tourism development.

Interest incentivesInterest accruing on deposit accounts of a non-resident company is tax-exempt, provided the deposits are made by transfer of funds to Nigeria on or after 1 January 1990 and the depositor does not become non-resident after making the deposit while in Nigeria.

Interest on foreign-currency domiciliary accounts is also tax-exempt.

Interest on any foreign loans, and interest on any loan granted by a bank for the purpose of manufacturing goods for export, is exempt from tax as follows:


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Repayment period Moratorium Exemption (%)Over 7 years Not less than 2 years 1005 to 7 years Not less than 1.5 years 702 to 4 years Not less than 1 year 40

Interest on any loan granted by a bank to a company engaged in agricultural trade, fabrication of local plant and machinery, or as working capital to any cottage industry is 100% tax free if the loan has a moratorium of not less than 18 months and the rate of interest is not more than the base lending rate.

Investment allowancesAn investment allowance of 10% on the cost of qualifying expenditures in respect of plant and machinery is available as a deduction from assessable profits in the year of purchase. There is no restriction to the full claim of capital allowance in any year of assessment for companies in the mining, manufacturing, and agricultural sectors.

Foreign tax creditNigeria does not grant automatic tax credits to Nigerian companies for foreign tax on income derived from other countries. The Nigerian tax laws already provides for tax exemption for dividends, interest, and royalties.

Foreign tax credits are only granted based on the provisions of existing DTTs and partial credits as applicable to Commonwealth countries. In this regard, full tax credits are usually provided for in the DTTs. Tax credits for members of Commonwealth countries are granted at up to half the Nigerian CIT rate.

Withholding taxes

WHT is applicable on specified transactions as indicated below. There is no distinction between the WHT rates for resident companies or individuals and non-resident companies or individuals.

Types of paymentWHT for

companies (%)WHT for

individuals (%)Dividends, interest, and rents 10 10Directors fees N/A 10Hire of equipment 10 10Royalties 10 5Commission, consultancy, technical, service fees 10 5Management fees 10 5Construction/building (excluding survey, design, and deliveries) 5 5Contracts other than sales in the ordinary course of business 5 5

The period for filing WHT is 21 days after the duty to deduct arose for deductions from companies.

The penalty for failure to deduct or remit tax is 10% of the amount not deducted/remitted.


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Note that companies are required to submit, in electronic form, a schedule of all their suppliers for the month showing the tax identification number (TIN), address of the suppliers, the nature of the transaction, WHT deducted, and invoice number.

Double tax treaties (DTTs)Nigeria has DTTs with the countries listed in the table below. Nigeria also has tax treaties with Kenya, Mauritius, and Poland; however, these treaties have not been ratified by the Nigerian National Assembly. The tax treaties with South Korea, Spain, and Sweden are still in the process of being ratified.

RecipientWHT (%)

Dividend Interest Royalties Management/Technical feesNon-treaty 10 10 10 10Treaty:Belgium 7.5 7.5 7.5 10Canada 7.5 7.5 7.5 10China 7.5 7.5 7.5 10Czech Republic 7.5 7.5 7.5 10France 7.5 7.5 7.5 10Netherlands 7.5 7.5 7.5 10Pakistan 7.5 7.5 7.5 10Philippines 7.5 7.5 7.5 10Romania 7.5 7.5 7.5 10Slovakia 7.5 7.5 7.5 10South Africa 7.5 7.5 7.5 10South Korea * 7.5 7.5 7.5 10Spain * 7.5 7.5 7.5 10Sweden * 7.5 7.5 7.5 10United Kingdom 7.5 7.5 7.5 10

* The tax treaties with South Korea, Spain, and Sweden are still being ratified.

Tax administration

Taxable periodThe taxable period is the fiscal year, which runs from 1 January to 31 December.

Tax returnsCompanies are required to register for tax and file their audited accounts and tax computations with the FIRS within six months of their financial year end on a self-assessment basis or 18 months after incorporation (whichever comes first). A company may file an application for extension of filing tax returns for up to two months at the discretion of the FIRS.

Upon registration, a company is issued a TIN, which serves as the company’s file number for all federal taxes and future correspondence with the FIRS.

The company must file the following documents with the tax authority on an annual basis:

• Tax computation for the relevant year of assessment.


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• The audited financial statements for the respective period; this should be in conformity with the International Financial Reporting Standards (IFRS).

• A duly completed and signed self-assessment form for CIT.• Evidence of remittance of the income tax liability (partly or in full).

PPT is payable on an actual year basis. Estimated tax returns must be filed within two months of the fiscal year. Actual tax returns should be filed within five months after the end of the accounting period, that is, not later than 31 May.

AssessmentNigerian companies file their tax returns based on a self-assessment system where the taxpayer prepares its annual returns and determines its tax liability. However, the FIRS may apply a best of judgment (BOJ) assessment where it is of the opinion that the tax returns filed are deliberately misstated or where no returns are filed within the stipulated period.

Payment of tax

CITA company that files its self-assessment within six months after the accounting year-end can apply to the FIRS in writing to pay its income tax in instalments. The maximum number of instalments the FIRS may approve is three. Evidence of the first instalment has to accompany the tax returns filed in order to qualify for the instalment payment. However, all payments have to be made not later than eight months after the financial year-end.

Assessments are made on a preceding year basis. This means that the financial statements for a period ended in 2016 will form the basis for the 2017 year of assessment.

PPTPayments with respect to PPT in any accounting period of 12 months are made in 12 instalments, with a final 13th instalment (if there is an underpayment). The first instalment for the year is due by the end of March.

Penalty for non-complianceFailure to file CIT returns attracts a penalty of NGN 25,000 for the first month and NGN 5,000 for each subsequent month of default. Late payment of CIT attracts a 10% penalty and interest at the commercial rate.

Late submission of PPT returns attracts an initial penalty of NGN 10,000 and NGN 2,000 for each day such failure continues, while late payment of tax attracts a penalty of 5% of the tax not paid.

Tax audit processGenerally, the tax authority will commence a desk examination of a taxpayer’s returns immediately after filing. This may be followed by a tax monitoring exercise whereby tax officers visit taxpayers to conduct an interview and on-site high level review of their tax affairs.

Random or specific tax audit may be carried out usually within six years of filing tax returns. In unusual cases, a back-duty tax investigation may be conducted for more than six years, especially where a tax fraud or wilful default is suspected.


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In the past, tax audits took a long time to conclude, usually between three to five years. However, the tax authorities are seeking ways to improve the average turnaround time.

New methodology for tax auditFIRS has now implemented an audit methodology that contains a dashboard for monitoring the progress of tax audits. Altogether there is a timescale of three months from commencement of audit to completion broken into one or two weeks for different activities (field work, initial report, reconciliation meetings, assessment). Colour green, amber, or red are used to indicate if everything is ‘on time’, ‘becoming due’, or ‘overdue’ respectively.

Statute of limitationsThe tax authority may carry out a tax audit and issue an additional assessment within six years from the relevant tax year. However, the limitation does not apply in the event of a fraud, wilful default, or neglect by the company.

Topics of focus for tax authoritiesThe tax authorities are currently exploring ways to generate more tax revenue. As a result, certain areas of taxation, such as transfer pricing, filing of tax returns by PEs, and review of tax incentives and waivers have become a central focus for tax authorities.

There has been increased scrutiny by the FIRS on related-party transactions as a way of preventing taxpayers from shifting profits away from Nigeria. It is expected that transfer pricing audits are expected to be an area of focus in the next one to two years.

Further, for non-resident entities that create a PE in Nigeria, the tax authorities are focused on ensuring that they file full tax returns, including audited accounts as opposed to filing on a deemed-profit basis. It is expected that the expenses of these PEs will be scrutinised for tax deductibility.

The tax authorities at the federal and state levels are sealing up companies, putting up non-compliance stickers, and holding principal officers of organisations to public scrutiny and prosecution under the tax law for non-compliance in terms of tax default or failure to make timely payments or to file tax returns. On a related note, the Lagos state government has set-up a rapid tax prosecution unit to prosecute tax evaders with considerations to a jail term.

Rwanda 303www.pwc.com/taxsummaries

Rwanda

PwC contact

Bernice KimaciaPricewaterhouseCoopers Rwanda Limited5th Floor, Blue Star House, KacyiruPO Box 1495KigaliRwandaTel: +250 252 5882 03/04/05/06Email: [email protected]


There have been no significant corporate tax developments in Rwanda during the past year.


Rwanda operates both a source and residence-based taxation system. This means that any income that is deemed to be from sources within Rwanda will be liable to tax in Rwanda. In addition, resident entities are taxed on their worldwide income. However, where such income is taxed in another country, a tax credit is allowed, which does not exceed the tax that would have been payable on the same income in Rwanda.

Non-resident entities are taxed on income sourced in Rwanda through a permanent establishment (PE).

The standard corporate income tax (CIT) rate is 30%; however, small businesses and individuals (whose business has a turnover of less than 20 million Rwanda francs [RWF] in a tax period) pay profit tax at the rate of 4% of turnover.

Special CIT regimesThere are special CIT rates for certain industries or sectors of the economy.

Newly listed companies on capital markets are taxed as follows for a period of five years:

• If a company sells at least 20% of their shares to the public, the CIT rate is 28%.• If a company sells at least 30% of their shares to the public, the CIT rate is 25%.• If a company sells at least 40% of their shares to the public, the CIT rate is 20%.

Venture capital companies registered with the Capital Markets Authority in Rwanda enjoy a CIT rate of 0% for a period of five years. This is also the same rate applicable to companies that carry out micro-finance activities.

Registered investors in priority sectors can enjoy reduced CIT rates and tax holidays where certain conditions and thresholds are fulfilled. See the Tax credits and incentives section for more information.

Local income taxesRwandan legislation does not provide for any provincial or local taxes on income.

PwC Worldwide Tax SummariesRwanda304

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Corporate residence

Rwanda incorporated companies or associations are treated as Rwanda resident entities. In addition, companies incorporated overseas are also treated as Rwandan resident companies if they have a place of effective management in Rwanda at any time during the tax period. The term ‘effective management’ is not defined in the tax law.

Rwandan government companies are also considered to be residents in Rwanda.

Permanent establishment (PE)The definition of a PE for Rwanda is largely based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention definition. According to Rwandan tax law, a PE means a fixed place of business through which the business of a person is wholly or partially carried on.

For non-resident companies, CIT liability will arise if they have a PE in Rwanda through which a trade is carried on. The profits attributable to the PE will be taxed in Rwanda. However, there are no rules or guidance on how the PE’s profit should be evaluated for Rwanda tax purposes. The general understanding is that entities are required to use transfer pricing methods to determine the level of profits that should be attributable to the PE based on the functions it performs.

In particular, the existence of the following triggers a PE: an administrative branch; a factory; a workshop; a mine, quarry, or any other place for the exploitation of natural resources; a building site; or a place where construction or assembly works are carried out.

There are a number of specific exceptions from the definition of a PE. A person is deemed not to have a PE if that person:

a. uses facilities solely for the purpose of storage or display of goods or merchandiseb. maintains a stock of goods or merchandise solely for the purpose of storage or

displayc. maintains a stock of goods or merchandise solely for the purpose of processing by

another persond. has a place of operation aimed purposely at purchasing goods or merchandise or at

collecting information related to one’s business, ore. has a place of operation solely for the purpose of carrying on preparations of one’s

activities and performing any other activities that make them more effective.

Where an agent, except an independent person concerned with (e) above, acts on behalf of a company (or person) and the agent has capacity to conclude contracts in the name of that company, the company is considered as having a PE in respect of activities one’s agent undertakes except if such activities of the agent are limited to those mentioned in (b) above.

However, a person is not considered as having a PE if it carries out activities through a broker, general commission agent, or any other private agent in accordance with procedures of the ordinary course of the activities of such an agent.

A company that controls or is controlled by another company does not, of itself, constitute either company to be a PE of the other.


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Other taxes

Value-added tax (VAT)VAT is levied on the supply of taxable goods and services in Rwanda as well as on the importation of taxable goods and services into Rwanda.

The threshold for VAT registration is taxable turnover of RWF 20 million in any relevant year or RWF 5 million in a calendar quarter.

The standard VAT rate is 18% and applies to goods and services that are neither exempt from VAT nor zero-rated.

Export of goods and services are subject to VAT at 0%. Supplies to privileged persons, such as goods imported for official purposes of diplomatic missions, supplies made under special arrangements between the government of Rwanda and donors, and supplies or importation made under special technical aid agreements, are subject to VAT at 0%. Persons entitled to zero rating of goods or supplies received by them are required to pay VAT at the time of receiving the supply and then apply for a refund of the VAT paid.

Some supplies are exempt from VAT, the main categories being supply of water service, goods and services for health purposes, educational materials and services, transport services, books and newspapers, financial and insurance services, lending or leasing interests in land or building for residential purposes, funeral services, energy supplies, all unprocessed agricultural and livestock products, mobile handsets, and equipment for information, communication, and technology.

Suppliers who provide zero-rated services or goods are entitled to recover input VAT incurred in making the supply. This is unlike exempt supplies, where input VAT recovery is not allowed. Therefore, zero rating is preferable to exemption.

The VAT returns and relevant payment are due to the Rwanda Revenue Authority (RRA) on a monthly basis by the 15th day of the following month. However, taxpayers with annual turnover of RWF 200 million or below may elect to file VAT returns or make payments on a quarterly or monthly basis.

Customs dutiesRwanda is a member of the East African Community, which uses the East African Community Customs Act (EACMA) for levying import duty. The EACMA prescribes Common External Tariffs (CET) for goods originating outside the Customs Union. Goods are generally subject to import duty of 0% for raw materials and capital goods, 10% for intermediate goods, and 25% for finished goods.

Goods will only enjoy the preferential community tariffs if they meet the East African Community (EAC) Customs Union Rules of Origin.

Certain industries and items are also entitled to exemptions under the customs law (e.g. assemblers of bicycles and motor cycle kits, importers of gas cylinders, certain hotel equipment, solar equipment, and energy saving bulbs).

Enterprises established in Free Trade Zones are exempt from customs duty on machinery and inputs for exported products. There also exists an import duty remission scheme, where import duty may be remitted for raw materials used to manufacture


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goods for export. This is subject to a requirement for proof of export and execution of the bond.

Additionally, all imported goods, except those listed as exempt, are subject to a levy of 1.5%. The levy is required to be computed on the customs value of imported goods.

Excise taxesExcise tax is imposed on the manufacturer or importation of certain commodities, mainly soft drinks, bottled water, cigarettes, alcohol, fuels, and lubricants.

The following rates apply in respect of products and services for which excise duty is applied:

• Juice from fruits: 5%.• Soda and lemonade: 39%.• Mineral water: 10%.• Beer: 60%.• Wine, brandies, liquors, and whisky: 70%.• Cigarettes: 36% of retail price of a pack (of 20 rods) and RWF 30 per pack.• Telephone communication: 10%.• Premium (excluding benzene) fuel and gas oil: RWF 183/litre on premium fuel and

RWF 150/litre on gas oil.• Lubricants: 37%.• Powdered milk: 10%.• Vehicles with an engine capacity of above 2500cc: 15%.• Vehicles with an engine capacity of between 1500cc and 2500cc: 10%.• Vehicles with an engine capacity of less than 1500cc: 5%.

Property taxes/fixed asset taxLocal government levies fixed asset tax on:

• the market value of parcels of land• the market value of buildings and all improvements thereto registered with the land

registration centre and for which the owner has obtained a title deed from the time the building is inhabited or used for other activities

• the value of land exploited for quarry purposes, and• the market value of usufruct with a title deed.

The tax rate is fixed at a thousandth (1/1000) of the taxable value per year. The tax payment must be paid not later than 31 March of the year.

Transfer taxesThere is a fixed fee of RWF 20,000 on transfer of property. However, no transfer of ownership of a fixed asset can be effected without a tax clearance certificate issued by the concerned decentralised entity.

Stamp taxesThere are no stamp duties in Rwanda.

Payroll taxesEmployers are required to withhold tax on payments to employees in respect of employment services that they have rendered. The tax is withheld through the pay-as-


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you-earn (PAYE) system. The tax deducted should be remitted to the RRA by the 15th day of the following month.

Social security contributionsAll people working in Rwanda, both nationals and foreigners, are required to contribute to a national social security contribution fund managed by the Rwanda Social Security Board (RSSB). The employer is required to contribute 5% of the employee’s gross salary to the scheme, while the employee’s contribution is 3%.

Gross salary means total remuneration received by the employee, including allowances, bonuses, commissions, and all other cash benefits, as well as any fringe benefits, but excludes reimbursement of business expenses and transport allowances.

The social security contributions computed are required to be remitted to the RRA by the 15th day of the following month.

Maternity leave benefits schemeThe government introduced a new law to govern maternity leave benefits (Law no. 003/2016 of 30 March 2016), which became operational with effect from November 2016. The law requires all employers and employees to contribute towards a maternity fund, which is administered by the RSSB.

The new law now grants employed women full monthly salary for the entire 12 weeks duration of maternity leave. This was not the case previously, as they were only entitled to 20% of their salary during the last six weeks of the maternity leave. The move will now allow mothers more time with their new born babies at full pay. The main requirements affecting employers are summarised below:

• The employer is responsible for collecting and remitting the contributions to the RSSB.

• The total contribution for maternity leave benefits is 0.6% of the contribution base. The employer and the employee are each required to contribute 0.3%.

• The contribution base is the gross pay to the employee, including benefits in kind, but excluding termination benefits, retirement benefits, dismissal compensation, and any other allowances that have a compensatory character.

• The employer is required to declare and remit the collected contribution to the RSSB by 15th day of the month following the month to which the contribution relates.

Trading licence feeDistricts charge a trading licence fee, which is paid by any person who commences a profit-oriented activity in Rwanda. The tax year starts on 1 January, and the trading licence fee must be paid for a whole year. If such activity starts after January, the taxpayer must pay a trading licence fee equivalent to the remaining months, including the one in which the activities started.

The tax declaration is done not later than 31 March of the tax year. The trading licence fee is calculated on the basis of turnover, and the amount of the fee varies between RWF 60,000 (for turnover of RWF 40 million) and RWF 250,000 (for turnover of over RWF 150 million).

The turnover applied is as per the amount approved in the previous year by the RRA. Every year, not later than 31 January, the RRA submits the necessary data to the concerned decentralised entity.


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There are also different rates for the trading licence fee for other small traders, such as small-scale technicians, transport activities by boat, traders, and technicians.

Branch income

The tax law does not prescribe special provisions for taxation of branches; consequently, tax rates on the profits of PEs are the same as for domestic corporations. PEs are subject to tax at a rate of 30% and treated as domestic companies.

A branch is considered a PE for the parent company; consequently, it is taxed on the income that is sourced from Rwanda only.


Inventory valuationTrading stock is valued at a lower of cost price or market price on the last day of the tax period. Work in progress is valued at cost.

Capital gainsThere is a general capital gains tax law in Rwanda that provides that capital gains arising from the sale of commercial immovable property are subject to tax at the rate of 30%. However, capital gains arising from secondary market transactions on listed securities are exempt from taxation.

In addition, capital gains and losses arising on reorganisation are exempt from tax in respect of the transferring company. Reorganisation is defined to include the following:

• a merger of two or more resident companies• the acquisition or a takeover of 50% or more of shares or voting rights by number or

value in a resident company in exchange for shares of the purchasing company• the acquisition of 50% or more of the assets and liabilities of a resident company by

another resident company solely in exchange of shares in the purchasing company, or

• splitting of a resident company into two or more resident companies.

Dividend incomeDividend income includes income from shares and similar income distributed by companies, cooperative societies, public business enterprise, and partnerships. Dividend income is subject to withholding tax (WHT) at the flat rate of 15%. Where there is a DTA between the recipient country and Rwanda, a lower rate as per the DTA will apply.

If dividend distribution has been subjected to WHT, this becomes the final tax.

In determination of taxable business profit of a resident company or partnership, dividends and other profit-shares received from a resident entity are therefore excluded.


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Interest incomeInterest income includes income from loans, deposits, guarantees, and current accounts. It also includes income from government securities and bonds, as well as from negotiable securities issued by public and private companies.

Interest income is subject to WHT at the flat rate of 15%. Where there is a DTA between the recipient country and Rwanda, a lower rate as per the DTA will apply.

Royalty incomeThe term ‘royalty income’ includes all payments of any kind received as a prize for the use of, or the right to use, any copyright of literary, craftsmanship, or scientific work, including cinematograph films, films, or tapes used for radio or television broadcasting. The term also includes any payment received from using a trademark, design or model, computer application, and plan, secret formula, or process. It also includes the price of using, or of the right to use, industrial, commercial, or scientific equipment or for information concerning industrial, commercial, or scientific experience. Royalty income includes natural resource payments as well.

Royalty income is subject to WHT at flat rate of 15%. Where there is a DTA between the recipient country and Rwanda, a lower rate as per the DTA will apply.

Foreign incomeResident companies and enterprises are taxed on their worldwide income. However, a foreign tax credit is granted in respect of taxes paid on the foreign income, subject to the limit of the tax that would have been paid in Rwanda on the same income.

There are no provisions in Rwanda for tax deferral of income earned abroad.

Deductions

A trading company is generally permitted to deduct expenses that are incurred wholly and exclusively for purposes of the company’s trade, provided these costs are not capital in nature and are charged to the profit and loss account.

The Rwandan tax law stipulates that deductible expenses should fulfil the following conditions:

• Used for direct purpose of and in normal course of business.• Actual expenses substantiated by proper documents.• Result in a decrease in net assets.• Used for activities related to the tax period in which they are incurred.

Depreciation and amortisationAccounting depreciation of fixed assets is not allowable as a deduction for tax purposes. The same applies in the case of amortisation of assets. However, businesses are allowed specified deductions, referred to as tax depreciation in respect of specified classes of assets. This is deducted in arriving at taxable income.

Tax depreciation allowance is granted to persons who own depreciable assets at the end of the tax period and use such assets in the production of income.


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Land, fine arts, antiquities, jewellery, and any other assets that are not subject to wear and tear or obsolescence are not granted tax depreciation. Cost of refining or reconstruction of building, equipment, and heavy machinery fixed to the walls attract tax depreciation at the rate of 5%.

Intangible assets, including goodwill that is purchased from a third party, enjoy tax depreciation at the rate of 10%, while computers and accessories, information and communication systems, software products, and data equipment are granted tax depreciation at 50%.

Tax depreciation allowance is also available on all other classes at the rate of 25%.

GoodwillAs mentioned above, purchased goodwill will attract tax depreciation at the rate of 10%, which is an allowable deduction. However, amortisation of goodwill is not tax deductible.

Start-up expensesThere is no clear guidance on the tax treatment of start-up expenses. However, in practice, start-up expenses of a capital nature are not deductible for tax purposes. Where they relate to purchase of assets, respective tax depreciation is claimed. Start-up expenses of a revenue nature are tax deductible.

Interest expensesInterest on borrowed money used for earning business profit or interest in respect of an amount payable for property acquired to earn income is deductible, provided the interest paid is pursuant to a legal obligation and is reasonable under the circumstances.

Thin capitalisation rules can limit interest deductions when debt owed to related entities exceeds four times the amount of the corporation’s equity (see Thin capitalisation in the Group taxation section).

Bad debtA bad debt provision will be deductible for tax purposes if it fulfils the following conditions:

• The amount was previously included in the income of the taxpayer.• Debt is written off in the books of accounts.• All possible steps have been pursued by the taxpayer, and there is concrete proof

that the debtor is insolvent.

It is the last condition that makes the criteria difficult to satisfy, and local taxpayers rarely obtain bad debt relief in practice.

However, licensed commercial banks and leasing entities duly licensed as such are allowed to deduct, in determining business profit, any increase of the mandatory reserve for non-performing loans as required by the directives related to management of bank loans and similar institutions of the National Bank of Rwanda. Similarly, the business profit is increased by the entire amount recovered from bad debts deducted from such reserves.


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Charitable contributionsDonations and gifts to charitable organisations and other non-profit making organisations are tax deductible where the amounts are less than 1% of turnover. However, donations to profit making organisations are not allowed for tax, irrespective of the amount.

Fines and penaltiesFines and penalties imposed for breaking the law or for statutory offences, such as payment of taxes late, are not tax deductible.

The law does not specify which type of non-statutory fines or penalties are not allowed for tax. For example, there is no guidance on whether fines or penalties paid for breach of contract are deductible or not.

TaxesIncome tax paid on business profit and recoverable VAT are not deductible for tax purposes. This includes any back taxes paid by the business.

Net operating lossesTax losses can be carried forward for the next five tax periods, earlier losses being deducted before later losses.

If the direct or indirect ownership of the share capital or the voting rights of an unlisted company changes more than 25% by value or by number during a tax period, such a company is restricted from carrying forward losses incurred during the tax period and previous tax periods.

There are no provisions for carryback of tax losses.

Payments to foreign affiliatesRoyalties, management fees, and similar payments to affiliated non-residents are deductible expenses to the extent that they are incurred to earn income of the Rwandan company and the payments adhere to the arm’s-length principle and comply with transfer pricing requirements.

Group taxation

There is no provision for group taxation in Rwanda. Each individual corporate group member is required to submit their own tax return on a stand-alone basis.

Transfer pricingRwandan transfer pricing legislation and the prescribed transfer pricing methods are generally consistent with OECD guidelines. The law requires that transactions between related parties be carried out under the arm’s-length principle.

The tax law empowers the Commissioner General to adjust profits earned between related parties if the Commissioner General considers that the trading arrangements between related parties do not adhere to the arm’s-length principle. The arm’s-length principle requires that transfer prices charged between related parties are equivalent to those that would be charged between independent parties in the same circumstances.


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Rwanda operates a self-assessment system; consequently, taxpayers are obligated to self-assess their compliance to the tax legislation, which includes transfer pricing policy. However, there are no specific transfer pricing documentation requirements currently in place.

Rwanda’s transfer pricing legislation provides an opportunity for advance pricing agreements (APAs) with the RRA, a progressive development giving businesses operating in Rwanda a greater degree of certainty. Taxpayers can discuss and negotiate their transfer pricing arrangements with the RRA and obtain an advance ruling confirming that their transfer pricing arrangement is appropriate. This is intended to minimise the potential for future disputes.

Thin capitalisationThe interest paid on loans and advances from related entities is not tax deductible to the extent that the total amount of loans/advances exceeds four times the amount of equity during the tax period. For purposes of determining the above, equity excludes provisions and reserves. This provision does not apply to commercial banks and insurance companies.

Controlled foreign companies (CFCs)There are no provisions in Rwanda for CFCs.


There are tax incentives in the form of lower CIT rates (see Special CIT regimes in the Taxes on corporate income section) for registered investors.

The investment code also provides the following incentives to a registered investor:

• A seven-year tax holiday for investments in the following specific sectors: manufacturing, tourism, health, exports, energy projects producing at least 25 MW (excluding investors having an engineering procurement contract [EPC] executed on behalf of the government of Rwanda, and information and communications technology (ICT) with an investment involving manufacturing, assembly, and service. The investment should be of at least 50 million United States dollars (USD) and the investor should contribute at least 30% of this investment in the form of equity in these sectors.

• A preferential CIT rate of 0% for international companies with their regional offices in Rwanda and that fulfil certain requirements.

• A preferential CIT rate of 15% for registered investors undertaking; (i) exportation (ii) energy generation, transmission, and distribution, (iii) transport of goods and related activities, (iv) mass transportation of passengers and goods, (v) ICT, (vi) financial services, including global business activities, private equity funds, fund management, wealth management, mutual funds, collective investment schemes, captive insurance schemes, venture capital, and asset backed securities, (vii) building of low-cost housing, and (viii) any another priority economic sector as may be determined by an Order of the Minister of Finance.

• Exemption from capital gains tax.• Five-year tax holiday for micro-finance institutions.• Customs exemption on products used in Export Processing Zones (EPZs).• Prompt settlement of VAT refunds.


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There are, however, certain conditions that have to be fulfilled to obtain the incentives above.

Note that a variety of tax incentives were given in the form of enhanced tax depreciation allowances (known as capital allowances) under the old investment code. The incentives were granted based on the type of assets purchased and used for business and the amount of investment made (see Depreciation and amortisation in the Deductions section).

Foreign tax creditRwanda allows a foreign tax credit on income generated from business activities performed abroad by a tax resident. The income tax payable is offset by the foreign tax paid on that income. However, the foreign credit is limited to the amount of tax that would have been applicable on that income in Rwanda.

The credit is allowed where it is supported by appropriate evidence, such as a tax declaration, a WHT certificate, or any other similar acceptable document.

Withholding taxes

A resident individual or resident entity is required to deduct a WHT of 15% when making the following payments:

• Dividends.• Interest.• Royalties.• Service fees, including management and technical service fees, with the exclusion of

international transport.• Performance payments made to an artist, musician, or sports person.• Lottery and other gambling proceeds.• Goods supplied by companies or physical persons not registered with the tax

administration.

There is also a WHT of 5% that is applicable on goods imported for commercial use. Public institutions are required to retain 3% on payments to winners of public tenders. However, businesses that possess a tax clearance certificate are exempted from deduction of the above WHT.

The WHT deducted should be remitted to the RRA within 15 days following the month of deduction.

Tax treatiesRwanda has double tax treaties (DTTs) with Belgium, Jersey, Mauritius, Singapore, and South Africa. The WHT rates are as follows:

Recipient

WHT (%)

Dividends Interest RoyaltyManagement or

professional feesBelgium 0 10 10 10Jersey 10 10 10 12Mauritius 10 10 10 12Singapore 7.5 10 10 10


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Recipient

WHT (%)

Dividends Interest RoyaltyManagement or

professional feesSouth Africa 10 10 10 10

The DTT agreements contain conditions to be complied with for the preferential rates to apply; consequently, it is recommended that professional advice is sought before application.

Tax administration

Taxable periodThe normal taxable period is between January and December. However, a different tax period can be allowed on approval by the Minister of Finance.

Tax returnsCompanies are assessed with reference to accounting periods. This refers to the period for which a company prepares its accounts. However, an accounting period for CIT purposes cannot exceed 12 months, so companies preparing statutory accounts for longer than 12 months need to prepare more than one CIT return.

Rwanda operates a self-assessment regime. Quarterly tax returns are due on 30 June, 30 September, and 31 December (or by the sixth, ninth, and 12th month of the tax period). The annual tax return/declaration must be filed within three months after the tax period. The tax declaration must include audited financial statements as well as any other documents that may be requested by the tax administration.

Payment of taxAdvance CIT is payable in three instalments. Tax payments are due on 30 June, 30 September, and 31 December (or by the sixth, ninth, and 12th month of the tax period). Each instalment is 25% of the tax liability as calculated in the tax return/declaration of the previous tax period. This amount can be reduced by WHT paid during the tax period. The final payment of CIT for taxpayers with a December year-end is 31 March of the following year. In the case of other accounting year-ends, the final CIT payment is due on the last day of the third month following the accounting year-end.

Tax audit processLarge taxpayers are selected for audit by the RRA on a regular basis. The RRA tends to audit two tax periods, but this can be extended on request by the taxpayer. Most audits are carried out onsite. The RRA may conduct a desk audit of the taxpayer’s tax affairs where they note discrepancies on tax returns filed by the taxpayer, anomalies with turnover, or any other situations that justify an audit.

Under normal in-depth audits, the RRA is required to issue a taxpayer with a draft notice of assessment following the completion of the field audit. The draft assessment is referred to as a rectification note. The taxpayer is granted 30 days within which to respond. In case the tax issues are not resolved, a final notice of assessment is issued. The taxpayer is allowed 30 days within which to appeal. Once an appeal is submitted to the Commissioner General, the RRA has 30 days within which to respond to the objection. This can be extended by another 30 days but not beyond this period. At


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this stage, the appeal is handled by the appeal committee, and the taxpayer and the taxpayer’s agent are invited for a meeting to provide explanations.

Once the final assessment is issued, the tax due is payable, although the Commissioner General has powers to suspend the payment pending the determination of the appeal.

There is a provision for resolving the dispute through an amicable settlement process. Taxpayers can opt for this approach while at the same time exploring the next stage of the appeal process.

A taxpayer that disagrees with the response on the final assessment can appeal to the high court within 30 days.

Statute of limitationsThe RRA has powers to audit a taxpayer for a period going back five years, although this can be extended to ten years in case of fraud. Taxpayers are required to keep their records for a period of ten years.

Topics of focus for tax authoritiesTopics of interest for the RRA include:

• Deduction of WHT on payments to non-resident persons and reverse VAT.• Treatment of capital gains on disposal of assets.• Recovery of reverse VAT on services that are regarded as being available in the local

market.• Reconciliation of turnover per financial statements to receipts as per taxpayer bank

statements.

Senegal 316www.pwc.com/taxsummaries

Senegal

PwC contact

Matthias HubertPricewaterhouseCoopers Tax & Legal3 Place de l’Indépendance - BP 6454Immeuble SDIHDakarSenegalTel: +221 33 849 05 00Email: [email protected]


As of 1 January 2017, the following significant taxes were introduced in Senegal by the 2017 financial law:

• Establishment of an export charge on exports of groundnuts (15 Communauté financière d’Afrique [Financial Community of Africa or CFA] francs [XOF]/kg for groundnuts in shell and XOF 40/kg for peeled peanuts).

• Establishment of a special tax on cement produced or imported in Senegal (XOF 3/kg).


Branches and companies are liable for corporate income tax (CIT) at the rate of 30%.

Residents are taxed upon their worldwide income. Non-residents are generally taxed via the existence of a permanent establishment (PE) on Senegal-source income.

Withholding taxes (WHTs) may also apply to non-residents, as per the services delivered to Senegalese taxpayers, subject to the application of a double tax treaty (DTT).

Minimum CITA minimum CIT is due, in case of lack of profits, at the rate of 0.5% applied on the annual turnover. The minimum amount cannot be less than XOF 500,000 and the maximum amount cannot be more than XOF 5 million.

Local income taxesSee the Other taxes section for a description of local taxes based on turnover and property.

Corporate residence

Companies are considered as Senegalese residents if they have a registered fixed establishment. Nonetheless, foreign companies that are not registered locally may be deemed to have a PE in Senegal in relation to their local activity and will then be subject to tax liabilities.

Permanent establishment (PE)The criteria for a PE were derived from the former General Tax Code (GTC) and are close to the Organisation for Economic Co-operation and Development (OECD)

PwC Worldwide Tax SummariesSenegal317

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standards. The current GTC does not include a PE provision, but the former one should be applicable. DTTs can be applicable and can provide specific definitions. These DTTs are based on the OECD model in most cases. See the Withholding taxes section for a list of countries with which Senegal has concluded DTTs.

Other taxes

Value-added tax (VAT)Subject to certain exclusions, most commercial operations are subject to an 18% VAT.

VAT on tourism activities is 10%.

A 17% special tax on financial activities (mainly banking, money transfers, and change operations) is applicable instead of VAT.

VAT returns must be filed monthly.

Customs duties/Import tariffsIn the case of import of goods, the following tariffs apply:

• Customs duties: 0%, 5%, 10%, or 20%, depending on the nature of the goods.• Statistical import charge: 1%.• Community solidarity levy: 1%.• Economic Community of West African States (ECOWAS) levy: 0.5% (only applicable

among ECOWAS countries).• Senegalese Shippers Council (COSEC) royalty: 0.4% (only applicable on

importation by sea).

Excise taxesThe products on which the Senegalese authorities levy excise tax, and the relevant excise tax rates, are as follows:

• Beverages: 40% for beverages containing alcohol, plus an additional tax ranging from XOF 1,500 to XOF 5,000 per litre; 3% for sparkling beverages.

• Tobacco: 45%.• Coffee: 5%.• Tea: 5%.• Fat: Rate varies from 5% to 12%.• Private cars with a horsepower (tax engine rating) superior to 13CV: 10%.• Cosmetic products: 10% (increased to 15% for depigmentation products).• Oil products (rates per nature and per hectolitre): XOF 21,665 for super-petrol, XOF

19,847 for conventional petrol, XOF 3,856 for petrol for the use of pirogues, XOF 10,395 for diesel.

Tax on built real estateThe tax on built real estate applies annually to owners of buildings, factories, industrial premises, or equipment fixed on the land. The tax rate is 5% for common buildings and 7.5% for factories and industrial premises. It is applied on the basis of the rental value of the lands, buildings, etc.


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Tax on non-built real estateThe tax on non-built real estate applies annually to owners of land without buildings, factories, industrial premises, or equipment fixed on the land. The tax rate is fixed at 5%. It is applied on the basis of the rental value of the land.

Stamp/registration dutiesThere are many stamp and/or registration duties, depending on the operations, such as the following:

Operation Stamp and/or registration dutyCommercial, house, or equipment lease 2% applicable on the basis of the annual rentTransfer of real estate 5% on the sales priceTransfer of debt 1% on the debt valuePledge 1% on the guarantee valueIncrease of the capital in cash 1% of the increase where the share capital is greater

than XOF 100 millionTransfer of business 5% on the sales priceTransfer of shares 1% on the sales price (or the market value if higher)

Payroll taxes

Pay-as-you-earn (PAYE)All compensation (including salary, cash allowances, and benefits in kind) paid to employees is generally taxable. For the calculation of the personal income tax (PIT) to be withheld by the employer, the tax administration provides a tax table determined on a monthly basis so that no calculation is necessary.

Employer taxEmployers are subject to a 3% tax based on the total gross salaries paid to employees.

Social Security contributionsSocial Security contributions are borne exclusively by the employer.

The rate for the industrial accident/occupational disease branch has to be confirmed by the authority when registering the entity with the Social Security Office (applicable rate to be stated within the related certificate).

SectorRate of contributions (only payable by employers) (%)

Maximum monthly basis of calculation (XOF)

Family 7 63,000Industrial accident / Occupational disease

1/3/5 63,000

Retirement contributionsRetirement contributions are payable both by the employer and the employees:

Regime

Rates of contributions (%) Maximum monthly basis of calculation (XOF)Payable by employers

Payable by employees (withheld on the salary)

General 8.4 5.6 360,000Executive 3.6 2.4 1,080,000


Senegal

Employment medical coverageThe employer shall subscribe for all employees a medical coverage. The level of coverage depends on the type of agreement concluded with the dedicated organism. Usually, the employee is reimbursed for 80% of medical expenses, even though the law provides a range between 50% and 80%.

The monthly rate is 6%, to be levied on a contribution rate between XOF 60,000 and XOF 250,000, for both the employee and the employer.

Business licence taxBusiness licence tax is an annual duty consisting of a fixed annual payment (fixed duty) and a proportional duty, calculated in most cases on the basis of the rental value of the premises used. The amounts and rates of these taxes are fixed according to the type and size of the activity carried out.

There is a table that includes several categories of business. For each category, a fixed tax is provided as well as the percentage that is applied on the assets at their fair value.

As an example, when the fixed tax depends on the level of the annual turnover, the following scale is applicable:

Level of turnover (XOF)Fixed amount of tax (XOF)Over Not over

0 50 million 75,00050 million 150 million 125,000150 million 250 million 175,000250 million 500 million 300,000500 million 800,000

In this case, the proportional tax is determined by applying the rate of 19% on the annual rental value of the offices, warehouses, sites, and other premises and installations considered as constructions, real estate, and assets in general that are used for the activities.

In the absence of a determined rent, the rental value is calculated by applying the following rates to the purchase price:

• Land: 3%.• Buildings and installations: 4.8%.• Fixed and movable tools: 5%.

Tax on telecommunicationThe tax rate is 5% on telecommunication use and access. To offset the tax, the purchase of mobile telephones (and other types of telephones) remains exempt from VAT and customs duty.

There are also two specific taxes payable by companies in the telecommunications sector. These taxes represent 3% (for the tax called ‘CODETE’) and 1% (for the tax called ‘PST’) of the annual turnover less the payments made to other operators for networking services.


Senegal

Tax on vehiclesAn owner of a motor vehicle (car, truck, or motorbike) must pay an annual tax fixed at XOF 1,000 per hectolitre, except for the pirogue gasoline.

Company tax on vehiclesIn addition to the tax on vehicles, companies owning or renting vehicles (more than 15 days a year) must pay a specific annual tax on them. Rates range from XOF 50,000 to XOF 200,000, depending on the type and horsepower of the vehicle.

Branch income

In general, the tax on branch income is similar to that of corporate income. Nonetheless, a 10% duty is automatically applied to profits generated after CIT. It corresponds to an automatic application of the 10% tax on payment on dividends applicable to a company.

Headquarter expenses, which are a proration of the worldwide office expenses, may be allocated to the Senegal branch. This proration is based upon a ratio of the local turnover of the branch and the worldwide turnover of the parent company. It applies to the total amount of headquarters’ expenses incurred by the company. In addition, the deductibility of headquarters expenses is limited to 20% of the accounting profits before the deduction. This limitation does not apply to other types of services provided by headquarters, such as technical assistance.


Inventory valuationInventory is generally stated at the lower of cost or market value. Last in first out (LIFO) and first in first out (FIFO) are permitted. Book and tax conformity is required.

Capital gainsCapital gains derived from the transfer of assets are subject to the 30% CIT. There is no basket system. Sales of stocks by a non-resident are liable to the 30% CIT, subject to the application of a DTT.

Dividend incomeIf a parent company domiciled in Senegal owns 10% of the subsidiary (main condition for the application of the parent-subsidiary corporation special taxation status), a 95% reduction on the dividends received is applicable for CIT purposes.

If these conditions are not met, dividends received by a company are subject to CIT as follows:

• 40% of the dividends are added back to the taxable profit.• The company benefits from a tax credit upon the CIT equal to 40% of the tax on

distributions withheld (at the general WHT rate of 10%).

Stock dividendsStock dividends are unusual in Senegal. However, this kind of distribution would be taxable at the general WHT rate of 10% on the basis of its real value.


Senegal

Interest incomeArticle 105 of the General Tax Code provides a list of interests that are not subject to CIT. For instance, the following are not subject to CIT:

• Interest on sovereign debt.• Interest on deposit accounts opened at the Housing Bank of Senegal (Banque de

l’Habitat du Senegal).• Interest on loans granted by the Central Bank.

Royalty incomeThere are no specific provisions for royalty income. In general and in case of foreign payment, they are subjected to 20% WHT (subject to a DTT that can limit or exempt the WHT), and in any case to 18% reverse VAT.

Foreign incomeIn general, profits generated in Senegal are taxed under Senegal’s income tax law. Profits generated outside Senegal and constituting a PE in the relevant country are not taxed in Senegal. A DTT can provide different rules.

Deductions

Depreciation and depletionThe rates of depreciation are not provided by the law. The rate is determined on the normal and predictable duration of use of the asset by taking into account normal wear and tear. In practice, there are standard rates for common assets. Accelerated depreciation can be applicable, subject to conditions.

GoodwillThere are no provisions in Senegal for goodwill.

Start-up expensesStart-up expenses are deductible if justified and approved by the shareholders.

Interest expensesInterests on current account advances or loans from a shareholder (directly or indirectly) are subject to restrictions as to their deduction from taxable income:

• The share capital of the company receiving the loan or advance shall be, beforehand, fully paid.

• The amount of the loan or advance shall not exceed the share capital of the company receiving it. It is not an individual but an overall ceiling on the total amount of loans and advances of all shareholders and seniors.

• The rate of interest shall not exceed the rate of advance of the Institute of Emissions plus 3 points. The rate published by the Ministry of Economy and Finance for 2017 is 3.5437%.

Bad debtThere are no provisions in Senegal for bad debt.


Senegal

Charitable contributionsOnly payments made to specific chartered organisations are deductible, at a rate of up to 0.5/100 of turnover. On the contrary, payments made to non-chartered organisations are not deductible.

Fines and penaltiesFines and penalties are not deductible for CIT purposes.

TaxesCIT and the company tax on vehicles are not deductible.

Other significant itemsProvisions are deductible if they correspond to a risk or a probable cost that is more than possible and leads to a decrease in the assets. Provisions for paid holidays and retirement compensation are not deductible.

Net operating lossesTax losses may be carried forward to the next three years. Losses corresponding to the depreciation of assets can be carried forward indefinitely. The carryback of losses is not allowed.

Payments to foreign affiliatesReasonable royalties, interest, and management service fees paid to foreign parent companies are deductible. Supporting documents (e.g. invoices, contracts) will be necessary to prove that these expenses are justified.

Group taxation

Group taxation is not permitted in Senegal.

Transfer pricingThe transfer pricing regulations globally correspond to the OECD requirements standards (i.e. identifying related-party transactions, choosing the suitable transfer pricing method, and preparing documentation to support the selection of such method).

Thin capitalisationThere are no specific rules regarding thin capitalisation in Senegal. Nonetheless, the following tax and legal rules should be known:

• From a legal point of view (corporate law), the net assets must be equal to at least half of the share capital of the company. In case the net assets are lower than this threshold, the situation should be regularised by any lawful means within a period of two years following the financial year it appears. Otherwise, any third party can request the closing of the entity before the courts.

• The deductibility of interest paid to a shareholder upon a loan or an advance in general is limited to a maximum rate calculated on the Central Bank legal interest rate (currently fixed at 3.5%) plus 3 points, calculated on the amount of the share capital (see Interest expenses in the Deductions section for more information). Portions exceeding this limit are not deductible for CIT purpose.


Senegal

Controlled foreign companies (CFCs)There are no provisions in Senegal for CFCs.


Foreign tax creditUsually, DTTs may provide some tax credit on the basis of the relationship between Senegalese entities and their partners located abroad. For each DTT, the specific process to enforce those tax credits either in Senegal or abroad (depending on the payments directions) are stipulated within that DTT. Nonetheless, as far Senegal is concerned, the practice consisting of enforcing foreign tax credits locally is very rare.

The Investment CodeThe Investment Code applies to investments over XOF 100 million (mainly production, processing, industrial, tourism, agricultural, and complex trade). The benefits of the Investment Code include exemption from customs duties, suspension of VAT payment for three years, CIT limitation, etc. The tax benefits are directly integrated in the GTC and do not require administrative authorisation (i.e. as long the requirements are met, the taxpayers may benefit from those tax benefits).

Free export company statusAgriculture, industry, and telecommunications companies that have an exporting potential amounting to at least 80% of their turnover may qualify for the free export company status. There are several advantages for companies that qualify, including a CIT rate of 15%, exemption from dividend WHT, exemption from business licence tax, exemption from taxes on real estate, and exemption from registration duty for incorporation or bylaws change purposes.

Miscellaneous incentivesThere are a wide range of investment laws (i.e. negotiations with the government to set up a specific tax regime different from common rules) for investments greater than XOF 250 billion, including the mining code and the petroleum code, among others. All of these tax benefits are directly included in the GTC.

Withholding taxes

Senegal has various WHTs. The primary ones are as follows:

• 20% WHT on remuneration paid for services (including royalties) rendered by a foreign individual or foreign company.

• 5% WHT on remuneration paid for services rendered by a resident individual (liable for tax under lump sum taxation, among others) or resident company that are not subject to CIT.

• 10% WHT on dividends distributed.• 13% WHT on bond interest.• 8% WHT on deposits or guaranteed interest on accounts with a bank.• 16% WHT on other revenues, notably interest on loans.

These WHTs may be limited by DTTs.


Senegal

Double tax treaties (DTTs)The DTTs concluded by Senegal are based on the OECD model in most cases. Senegal has concluded such treaties with the countries listed in the table below.

Treaty WHT rates are as follows:

Recipient Dividends (%) Interest (%) Royalties (%)Belgium 10 15 10Canada 10 16 15France 10 15 15Italy 10 15 15Lebanon 10 10 10Mauritania 10 16 N/AMauritius N/A N/A N/AMorocco 10 10 10Norway 10 16 16Portugal 5/10 10 10Qatar N/A N/A N/ASpain 10 10 10Tunisia 10 16 N/AUnited Kingdom 5/8/10/15 10 10WAEMU * 10 15 15

* West African Economic and Monetary Union (member states are Benin, Burkina-Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, and Togo).

Tax administration

Taxable periodThe tax year in Senegal is the calendar year.

Tax returnsCompanies must file CIT returns by 30 April of the year following the tax year.

Also, in addition to the miscellaneous annual returns (business licence tax, company car tax, etc.) and other monthly tax returns (VAT, payroll taxes, WHT, etc.), taxpayers must file by 31 January for the prior financial year:

• An annual recapitulative payroll tax return.• An annual recapitulative return on payment for services.

Payment of taxCIT must be paid in two instalments (each equal to one-third of the previous year’s tax) by 15 February and 30 April. The outstanding balance payment amount of the tax due must be paid by 15 June.

For the first financial year of a newly incorporated company, no instalment is due; the new company pays the whole CIT before 15 June of the following year.


Senegal

PenaltiesIn case of late payment, a 5% interest of delay on the amount due plus an additional 0.5% duty per month of delay or portion of month of delay are applicable. This late payment is due when the taxpayer’s regularisation is spontaneous.

On the other hand, if such payment is triggered by a tax audit from the authority itself after the deadline is crossed, the following penalties apply:

• 50% for any WHT and VAT.• 25% for other taxes (CIT, business licence tax, taxes on real estate, registration

duties, company car tax).

Also, the late filling of tax returns triggers an XOF 200,000 penalty per return.

Tax audit processThe tax authorities may request information, clarifications, or justification to the taxpayers. The taxpayers have 20 days to answer to those requests.

The tax authorities may also implement an inspection of the accounting documents at the premises of the taxpayer or at any place the taxpayer would consider more appropriate for material reasons upon a specific request. In such cases, a notice is sent to the taxpayer at least five days before the beginning of the inspection.

The tax authorities are not allowed to process a new tax inspection on a period already inspected by their services unless a new element or document is revealed after the first inspection was processed.

Where the tax authorities estimate that the taxpayer has not fulfilled all of one’s tax obligation, a tax reassessment shall be transmitted to the taxpayer, who has 30 days in order to answer or comment on the findings.

After the tax authorities have received those comments, they can confirm partially or totally the reassessment within a statutory delay of 60 days.

Statute of limitationsThe statute of limitations is, generally speaking, four years.

Topics of focus for tax authoritiesWith regards to corporate tax compliance, the tax authorities are generally focusing on certain expenses with forbidden or limited deductibility, such as depreciation of assets, provisions, interest, royalties/services fees, insurance premiums, head office costs, etc., but they usually define their approach according to the business sector of the company.

South Africa 326www.pwc.com/taxsummaries

South Africa

PwC contact

Jabu MasondoPricewaterhouseCoopers Inc2 Eglin RoadSunninghill 2157South AfricaTel: +27 11 797 0836Email: [email protected]


After the switch from the source-based taxation to the worldwide taxation of South African (SA) residents in 2000, and the introduction of capital gains tax in 2001, the SA tax system has not undergone fundamental changes. Smaller reforms, however, are on-going.

The most significant recent development was the increase in the rate of dividends tax from 15% to 20%. In the case of local dividends (i.e. dividends declared and paid by SA-resident companies and by non-resident companies in respect of shares listed on the Johannesburg Securities Exchange [JSE]), the increased rate applies in respect of dividends paid on or after 22 February 2017, with the increased rate applying to foreign dividends (i.e. dividends paid to SA residents by non-SA-resident companies that are not listed on the JSE) from 1 March 2017.


An SA-resident company is subject to corporate income tax (CIT) on its worldwide income, irrespective of source. Non-residents are taxable on SA-source income.

In South Africa, the CIT rate applicable for corporate income of both resident and non-resident companies for tax years ending between 1 April 2017 and 31 March 2018 is a flat 28%.

Close corporations, which are essentially a simplified form of company, are taxed at the same rate as companies and are subject to the same taxation rules.

Small business corporations (i.e. companies with only natural persons as members/owners and with gross income of not more than 20 million South African rand [ZAR]) are taxed at the following rates:

• 0% on the first ZAR 75,750 of taxable income.• 7% on taxable income above ZAR 75,750 but not exceeding ZAR 365,000.• 21% on taxable income above ZAR 365,000 but not exceeding ZAR 550,000.• 28% on taxable income exceeding ZAR 550,000.

Special CIT rates apply in certain industries, such as mining and long-term insurance (see below).

PwC Worldwide Tax SummariesSouth Africa327

South Africa

Alternative turnover-based tax for very small companiesTo reduce the compliance costs for very small companies, a turnover-based presumptive tax is available. Companies with a turnover of less than ZAR 1 million per year can elect to pay this tax instead of normal CIT, at a rate ranging from 0% to 3%, depending on the turnover.

Dividends taxDividends tax is imposed at 20% on dividends declared and paid by resident companies and by non-resident companies in respect of shares listed on the JSE paid to SA residents.

Dividends are tax exempt if the beneficial owner of the dividend is an SA resident company, SA retirement fund, or other prescribed exempt person.

The tax is to be withheld by companies paying the taxable dividends or by regulated intermediaries in the case of dividends paid through a regulated intermediary. In the case of in specie dividends, the company declaring the in specie dividend is liable for the dividends tax and not the beneficial owner of the dividends.

Exemptions from dividends tax and treaty-imposed reduced rates only apply if the beneficial owner of the dividend has made the required declaration to the paying company or regulated intermediary.

CIT for mining companiesSpecial rates of normal tax, based on a standard formula, are laid down for companies mining for gold. Companies mining for other minerals are subjected to the same 28% rate of normal tax applying to ordinary companies.

CIT for long-term insurance companiesLife insurance companies are obligated to follow the ‘five-funds approach’, with policies divided into five funds, depending on the nature of the beneficiary. Each fund is then allocated assets according to the risk carried by the fund. Funds are treated as separate taxpayers and taxed at different rates. These rates are 30% for individual policyholder funds, 0% for untaxed policyholder funds, and 28% for company policyholder funds, risk policy funds, and corporate funds (a corporate fund being the company itself).

Local income taxesNo local government taxes on income apply to either SA-resident or non-resident companies.

Corporate residence

A company is resident in South Africa if it is incorporated, established, or formed in South Africa or has its place of effective management in South Africa. However, a company that is deemed to be exclusively resident in another country in terms of a double taxation agreement (DTA) is excluded from SA residency.

In terms of an Interpretation Note issued by the South African Revenue Service (SARS), the place of effective management is regarded as the place where key management and commercial decisions that are necessary for the conduct of its business as a whole are, in substance, made. This approach is consistent with internationally accepted principles.


South Africa

Permanent establishment (PE)South Africa does not, as a general rule, tax non-residents on the basis of having a PE in South Africa. Rather, non-residents are subject to income tax in South Africa on income derived from a South African source. The primary exception to this rule is in relation to capital gains, where non-residents are subject to tax on assets attributable to a PE in South Africa. A PE is defined with reference to the definition thereof in the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.

Other taxes

Value-added tax (VAT)VAT is an indirect tax that is largely directed at the domestic consumption of goods and services and at goods imported into South Africa. The tax is designed to be paid mainly by the ultimate consumer or purchaser in South Africa. It is levied at two rates, namely a standard 14% rate and a zero rate (0%).

Very few business transactions carried out in South Africa are not subject to VAT. The tax is collected by businesses that are registered as vendors with the SARS on all taxable supplies throughout the production and distribution chain. Sales or supplies by non-vendors are not subject to VAT.

VAT registration and administrationAll suppliers of goods and services having an annual turnover exceeding ZAR 1 million are obligated to register as VAT vendors and to charge output VAT. Other vendors may elect to register as VAT vendors, provided their annual turnover exceeds ZAR 50,000. Two exceptions apply. Firstly, non-resident suppliers of electronic services are obligated to register after aggregate supplies of ZAR 50,000 have been made. Secondly, persons likely to make taxable supplies only after a period of time may register if the activities are of a nature set out in regulations. If they do not register, they are prohibited from charging VAT on goods or services they supply and claiming an input tax (rebate of VAT paid) on goods and services that they acquire.

Under the VAT system, vendors normally pay VAT on expenses (input tax) and charge VAT on supplies made (output tax). This mechanism, therefore, ensures that only the so-called ‘added-value’ is taxed. Due to VAT being a self-assessment system, the output tax collected may be reduced by input tax paid. Thereafter, the net amount is payable to, or refundable by, the SARS. The self-assessment returns are due regularly within prescribed periods (tax periods).

Taxable suppliesStandard rated and zero-rated supplies are known as taxable supplies. Other supplies are known as exempt and non-supplies.

Goods and servicesFor a liability for VAT to exist, there must be a supply or importation of goods or services. Goods are corporeal movable things, fixed property, and real rights in such things and property. The meaning of ‘services’ is very broad and includes the granting, assignment, cession, or surrender of any right or the making available of any facility or advantage.


South Africa

Electronic servicesNon-resident suppliers of electronic services are compelled to register for VAT on the payments basis and account for VAT on supplies of electronic services to SA residents.

ImportsServices imported by a vendor and utilised or consumed by the vendor for the making of taxable supplies are not subject to VAT. In addition, the VAT Act has a schedule that lists goods that are exempt from VAT on importation, whether by a vendor or an unregistered person.

Zero-rated suppliesThe VAT Act contains a list of the supplies of goods or services that are taxed at the zero rate. Most of the items refer to exports and international transport, but other specified goods utilised for farming purposes, the sale of an enterprise as a going concern, certain basic foodstuffs, fuel subject to the fuel levy, and deemed supplies by welfare organisations are also zero-rated.

A zero-rated supply made by a vendor is subject to VAT but at a rate of 0%. Under a zero-rated supply, a vendor does not charge VAT on the consideration for the supply and obtains a refund or credit for the VAT paid on taxable supplies utilised in the making of the zero-rated supplies.

Exempt suppliesIn addition to zero-rated supplies, the VAT Act contains a list of the supplies of goods or services that are exempt from VAT. While all fee-based financial services are subject to VAT, the charging of interest is exempt. Other exempt supplies include residential rentals, non-international passenger transport by road or rail, and educational services.

Under exempt supplies by vendors, the vendors do not charge VAT on the supply, and they are not entitled to a deduction or credit for the VAT paid by them on goods and services supplied to them for the making of the exempt supply. Accordingly, vendors treat the VAT paid by them, and for which they do not obtain a deduction or credit, as another cost and recover it in the consideration they charge for the making of the exempt supply.

Customs dutiesCustoms duties are charged on importation of goods into South Africa at rates ranging between 3% and 45%. The import duties may also include anti-dumping and countervailing duties of up to 150%. No customs duties are charged on trade between South Africa and Botswana, Lesotho, Namibia, and Swaziland, as these five countries constitute the Southern African Customs Union.

Excise dutiesExcise duty is levied on certain locally manufactured goods as well as their imported equivalents. A specific duty at a pre-determined amount is levied on tobacco and liquor, and an ad valorem duty (calculated as a percentage of price) on certain luxury goods and automobiles. Relief from excise duty is available for exported products and for certain products produced in the course of specified farming, forestry, and (limited) manufacturing activities.


South Africa

Property taxesLocal municipalities levy rates on land. These rates are based on a percentage of the municipal valuation of land and improvements and vary from municipality to municipality. Generally, a higher rate is levied on properties zoned for business use.

Transfer dutyTransfer duty levied on the sale of immovable property is payable by the person acquiring the property within six months from the date of acquisition at the following rates:

Purchase price (ZAR) Transfer duty rateNot exceeding 900,000 0%900,001 to 1,250,000 3% on value above 900,0001,250,001 to 1,750,000 10,500 plus 6% on value above 1,250,0001,750,001 to 2,250,000 40,500 plus 8% on value above 1,750,0002,250,001 to 10,000,000 80,500 plus 11% on value above 2,250,000Exceeding 10,000,000 933,000 plus 13% on value above 10,000,000

Transfers of immovable property subject to VAT are exempt from transfer duty.

Securities transfer tax (STT)STT is levied at a rate of 0.25% of the taxable amount in respect of the transfer of a security. The taxable amount is usually the consideration for which the security is purchased or the market value of the security if the consideration declared is less than the market value or if no consideration was paid. STT is payable by the company that issued the securities in question. However, the company can recover the tax from the person acquiring the shares. Slightly different rules apply in the case of listed securities.

Payroll taxesEmployers are liable to withhold pay-as-you-earn (PAYE) on behalf of their employees. PAYE is payable to SARS on a monthly basis, calculated on the remuneration paid to an employee. The rates vary depending on the employee’s remuneration.

Skills Development Levy (SDL)SDL is a compulsory levy to fund education and training. It is payable by an employer and cannot be deducted from the remuneration payable to an employee. Small employers with an annual payroll of less than ZAR 500,000 are exempt from the levy. SDL is levied at the rate of 1% of payroll. It is payable monthly, together with income tax that the employer has withheld on its employees’ salaries.

Unemployment Insurance Fund (UIF) contributionsEmployers are required to contribute on behalf of their employees on a personalised basis to the UIF. The rate of contributions is 1% of gross remuneration payable to an employee; however, the monthly cap of ZAR 148.72 applies. Another 1%, subject to the same cap, is payable by the employee and withheld by the employer.

Compensation for Occupational Injuries and Diseases Act (COIDA) fundEmployers are liable for making annual contributions to the COIDA fund. COIDA contributions are a payroll cost that cannot be deducted from the employee’s salary, with a maximum salary cap of ZAR 355,752 per annum. The rates vary depending on the employer’s industry.


South Africa

Donations taxDisposals of assets below an adequate consideration are a deemed donation and subject to donations tax. Donations tax is payable by resident companies at a flat rate of 20% on donations made. An annual exemption of ZAR 10,000 is available.

Public companies, comprised of mostly listed companies, are exempt from donations tax. An exemption is also available for donations made to certain charities and other non-profit organisations.

Vehicle emissions taxAn environmental levy is levied on new passenger motor vehicles based on grams per kilometre of CO2 emissions of the vehicle over a stated level. The levy is between ZAR 100 and ZAR 140 (depending on the nature of the vehicle) per gram per kilometre over the CO2 threshold level (which threshold level also depends on the nature of the vehicle).

Fuel levyA fuel levy is included in the price of petroleum fuel sold. The general fuel levy for 2017/18 is 315 cents per litre of petrol and 300 cents per litre of diesel. A refund of the diesel fuel levy may be claimed in certain industries, such as agriculture, fishing, and mining.

Electricity levyTo support energy efficiency, the government has implemented a levy on electricity generated from non-renewable sources at 3.5 cents/kWh. The levy is paid at source by the electricity producer and recovered in the price to the consumer.

Tyre levyA tyre levy is applicable at a rate of ZAR 2.30/kg, effective 1 October 2016. The levy replaced the fee arrangements for tyres, as regulated by the Department of Environmental Affairs.

Sugar taxA tax on sugar-sweetened beverages, in the form of the Health Promotion Levy on Sugary Beverages, is proposed to be introduced during the 2017 calendar year. The base on which the tax will be applied will be the sugar content of the beverage. The proposed tax rate will be 2.1c/gram for sugar content in excess of 4g/100ml. Of the proposed rate, 50% will apply to concentrated beverages.

Air passenger taxPassengers departing on international flights must pay air passenger tax at the rate of ZAR 100 on flights to Botswana, Lesotho, Namibia, and Swaziland, and ZAR 190 on other flights. The tax is added to the price of the ticket.

Branch income

SA branches of foreign companies are not considered to be separate legal entities for tax purposes, and no tax is withheld on transfers of profits to the head office. Branches of foreign companies are taxed at a rate of 28% and are not liable for dividends tax or any branch profits repatriation tax.


South Africa

Note that a branch must register as a taxpayer and submit tax returns. Separate financial statements must be drawn up for the SA branch. For all practical purposes, the SARS will treat the branch as a separate entity. For example, inter-branch cost recoveries levied by the head office incurred in the production of SA income normally will be allowed as a deduction by the branch, although this treatment is not extended to interest on inter-branch loans.

In terms of DTAs, the taxation of branches is limited to cases where the branch constitutes a PE.


Inventory valuationInventories generally are stated at the lower of cost or net realisable value. Write-downs of inventory for slow-moving and obsolete items must be justified, and a general policy on a percentage basis is not permitted. Last in first out (LIFO) is not accepted for tax purposes.

Capital gainsAlthough the capital gains tax forms part of income tax, the two taxes are not fully integrated. While gains realised by companies are taxed at the normal CIT rate, only 80% of gains are included in taxable income, making the effective capital gain tax rate for companies 22.4%.

Dividend incomeDividends are generally taxed in the hands of the beneficial owner at a rate of 20% (see Dividends tax in the Taxes on corporate income section). Dividends tax is withheld by the company declaring the dividend on behalf of the shareholder receiving it. In specie dividends are subject to tax in the hands of the company and not the beneficial owner.

Foreign dividends received by or accrued to an SA-resident taxpayer are included in income based on a formula and taxed at the normal CIT rate, which results in an effective tax rate of 20%. Qualifying foreign dividends are also generally not subject to tax where they are received by resident shareholders holding in excess of 10% of the equity shares and voting rights of the company declaring the dividend. Dividends received by residents holding less than 10% of such shares will generally be taxable in South Africa, subject to a tax credit for foreign taxes payable by the recipient shareholder.

Stock dividendsStock dividends (capitalisation issues of shares) are not subject to CIT or dividends tax.

Interest incomeInterest income of resident companies is taxed at the normal CIT rate.

Interest received by a non-resident company is only subject to CIT if the debt claim in respect of which it is paid is effectively connected with a PE of that non-resident company in South Africa during the tax year, and where that non-resident company is registered as a taxpayer in South Africa.

A 15% withholding tax (WHT) applies to interest paid on certain debt instruments to non-resident companies and where the interest is not subject to CIT.


South Africa

Royalty incomeRoyalty income of resident companies is taxed at the normal CIT rate.

Royalty income received by a non-resident company is only subject to CIT if the property in respect of which the royalty income is paid is effectively connected with a PE of that non-resident company in South Africa during the tax year, and where that non-resident company is registered as a taxpayer in South Africa.

A 15% WHT applies to royalties paid to non-resident companies where the royalties are from a South African source and where the interest is not subject to CIT.

Foreign incomeForeign income of an SA-resident company is subject to tax in South Africa on the earlier of receipt or accrual. However, income that may not be remitted to South Africa in terms of the laws of the country where the amount arose is deferred until the income can be remitted. Double taxation may be avoided under certain DTAs or by way of unilateral credit or deduction for foreign tax payable on foreign income (see Foreign tax credit in the Tax credits and incentives section).

Deductions

Depreciation and depletionA depreciation (wear and tear) allowance may be deducted on movable assets used for the purpose of trade. There are no statutory provisions relating to rates of wear and tear, but the SARS has published a table of periods over which the assets may be written off. The rates of wear and tear, based on the cash cost, are calculated either according to the straight-line or diminishing-balance method.

New and unused machinery used in a process of manufacture or in a similar process is depreciable at the rate of 40% in the first year of use and 20% in the three following years. If the machinery is not new and unused, an allowance of 20% per year over five years is available.

An accelerated depreciation allowance (50% in the first year of use, 30% in the second, and 20% in the third year) applies to the machinery and articles used in farming, production of biodiesel or bioethanol, and production of energy from certain renewable sources.

Specific allowances are also provided for pipelines, transmission lines, railway lines, rolling stock, airport property, ports, ships, mining operations, and other qualifying industrial assets.

Buildings and other permanent structures may not be depreciated, apart from an annual allowance for each of the following:

• Buildings used in a process of manufacture or a process similar to a process of manufacture: For buildings erected before 1 January 1989, a 2% rate applies per year. For buildings erected after 1 January 1989, a 5% rate applies.

• Hotel buildings: For buildings built prior to 4 June 1988, a 2% rate applies per year. For hotel buildings erected after 4 June 1988, a 5% rate applies. Improvements within the existing building framework that commenced on or after 17 March 1993 are depreciated at the rate of 20%.


South Africa

• Agricultural cooperative storage buildings: For buildings built prior to 1 January 1989, a 2% rate applies per year. For buildings erected on or after 1 January 1989, a 5% rate applies.

• Housing projects of not less than five units: Housing projects of not less than five units of residential accommodation, which consist of more than one room and the erection of which commenced on or after 1 April 1982 and before 21 October 2008, are subject to a 2% rate of depreciation. After 21 October 2008, an allowance of 5% is available on this type of property. The 5% depreciation rate is available to the taxpayer provided that the unit is used by the taxpayer solely for trade purposes, the unit is situated in South Africa, and the taxpayer owns at least five units in South Africa used for the purposes of trade. An additional allowance is available for a low-cost residential unit. Additionally, from 21 October 2008, taxpayers are granted relief for the transfer of ownership on a contract for deed basis of employer provided low-cost residential units to employees.

• Buildings in urban development zones: Improvements to an existing building in an urban development zone, where the existing structural or exterior framework is preserved and brought into before 31 March 2014, qualify for an accelerated allowance of 20% per year. Buildings that are erected, extended, or added to in an urban development zone on or after 21 October 2008 and which are not covered by the first mentioned allowance qualify for a 20% allowance in the first year and an 8% allowance in the following ten years. As of 21 October 2008, new and unused low-income residential units located in urban development zone demarcations are subject to an additional annual depreciation allowance. The rate is 25% in the first year, 13% in the succeeding five years, and 10% in the year following the last year. Improvements are subject to a depreciation allowance of 25% over a period of four years.

• Commercial buildings: The cost to the taxpayer of any new and unused building owned by the taxpayer, or any new and unused improvement to any building owned by the taxpayer, if that building or improvement wholly or mainly is used by the taxpayer for trade purposes, other than the provision of residential accommodation, is subject to a 5% rate of depreciation. This allowance is applicable to any building or improvement contracted for on or after 1 April 2007 and the construction of which commenced on or after 1 April 2007.

An allowance for assets disposed of or scrapped during a year of assessment is determined by reference to the cost less allowances already granted and the proceeds on disposal (if any). Recoupments of allowances granted are taxable where disposal proceeds exceed the tax basis at the time of sale. Such recoupments cannot exceed the cost of the asset. Proceeds above cost will be taxed as a capital gain.

Book depreciation does not need to be consistent with tax depreciation.

No cost or percentage depletion is available for natural resources.

GoodwillThe sale and purchase of goodwill is generally a transaction on capital account, and the person paying for the goodwill will usually be unable to claim a deduction. No capital allowances are available for goodwill.

Start-up expensesSpecial relief is provided for start-up (or pre-trade) expenditure to allow for a deduction in the year that trade commences. The expenses are only deductible if they would have been deductible had they been incurred after the commencement of trade.


South Africa

These expenses and any loss they create are ring-fenced and may only be deducted against income from the trade to which the start-up costs relate.

Interest expensesGenerally, interest expenditure incurred in the production of non-exempt income and for the purposes of trade is deductible. However, interest that is incurred to produce income that is exempt from tax will not be allowed as a tax deduction. A special dispensation applies to the deduction of interest on debt used to acquire shares in a company, provided certain requirements are met.

Special rules apply to determine the amount of interest and timing of any deductions taking into account all payments and receipts in respect of debt instruments with interest being determined on the basis of an internal rate of return.

Certain debt instruments that are convertible to shares or may be settled in shares or where repayment is subject to solvency or related to connected-party debt with a maturity of 30 years or more are treated as hybrid debt instruments and no interest deduction is allowed in respect thereof. Certain hybrid interest is also treated as a dividend.

In addition, the interest deduction for interest paid between related parties is limited where such interest is not subject to income tax or WHT on interest. In terms of these rules, interest deductions are limited to an amount determined with reference to a percentage of taxable income before interest and depreciation. The percentage is determined with reference to the repo rate with a ceiling of 60% of adjusted taxable income. Any excess interest may be carried forward to the following year for deduction. The transfer pricing and thin capitalisation rules continue to apply to such interest.

Further interest deduction limitations also apply to interest paid on debt used to fund acquisitions of shares or businesses under certain of the corporate rollover relief provisions (see the Group taxation section). In terms of these rules, with some amendments thereto only applying for years of assessment commencing on or after 1 January 2015, interest deductions on such transactions are limited to an amount determined with reference to a percentage of taxable income before interest and depreciation. The percentage is determined with reference to the repo rate with a ceiling of 60% of adjusted taxable income.

The deduction of cross-border interest paid to connected persons is subject to limitation under transfer pricing rules (see Transfer pricing and thin capitalisation in the Group taxation section).

Bad debtBad debts are tax deductible if the debt relates to an amount that has been included in the taxpayer’s taxable income in any tax year if it is due at the end of the year of assessment. A tax allowance is also provided for in respect of specifically identified doubtful debts.

Any bad debts arising on loaned money is deductible if it was lent in the course of a money-lending business.

Charitable contributionsDonations to certain charitable organisations approved as public benefit organisations are tax deductible, up to a maximum of 10% of taxable income.


South Africa

Cost of inventoryThe cost of inventory is, in principle, deductible as soon as the inventory is acquired. However, at the end of each year, the cost of the inventory still on hand has to be added to the company’s income. Then in the next year, it can be deducted again. This has the effect of timing the deduction of the cost of inventory to match the time of its realisation.

Assets acquired for shares issuedWhen assets are acquired by a company in return for shares issued to the seller, the purchaser of the assets is deemed to have incurred expenditure equal to the market value of the shares immediately after acquisition. Special rules apply in the case of a mismatch in the value of the shares and assets.

Fines and penaltiesAny fine or penalty imposed in respect of an unlawful activity carried out in South Africa, or in any other country where it would be unlawful in South Africa, is not deductible for tax purposes.

TaxesMost taxes (other than income taxes, donations tax, WHT on interest, and dividends tax) are deductible from taxable income for the corporation, provided they qualify for deduction under general rules.

Net operating lossesLosses may be carried forward indefinitely, provided an active trade or business of a similar nature is carried on without interruption. Loss carrybacks are not provided for in South Africa.

Payments to foreign affiliatesDeductions may be claimed for royalties, managerial service fees, and interest charges paid to foreign affiliates, provided such amounts approximate those that would be paid to an unrelated party in an arm’s-length transaction.

Interest deductions may be limited in certain circumstances (see Interest expenses above and Transfer pricing and thin capitalisation in the Group taxation section).

Group taxation

Group taxation is generally not permitted in South Africa. However, relief is given for transactions between group companies to allow for reorganisations, provided certain requirements are met.

In general, the relief will only apply to transactions between companies within the same group. A group of companies is defined as a controlling company and one or more controlled companies in relation to that controlling company. A controlling company means a company holding, directly or indirectly, at least 70% of the equity shares of any other company. Foreign-incorporated companies do not form part of a group of companies for the purposes of this relief unless effectively managed in South Africa, although relief is extended to controlled foreign companies (CFCs) in certain circumstances.


South Africa

Corporate rollover relief is available for asset-for-share transactions, amalgamation transactions, intra-group transactions, unbundling transactions, and transactions relating to liquidation, winding-up, and deregistration.

The relief may cover the capital gains tax arising from the disposal of capital assets, income tax arising from the disposal of a depreciable asset, income tax arising from the disposal of trading stock, donations tax arising from the disposal of an asset, dividends tax, VAT, securities transfer tax, and transfer duty.

Transfer pricing and thin capitalisationSouth Africa has transfer pricing legislation applying to cross-border transactions involving connected persons. The transfer pricing legislation applies the arm’s-length standard.

The transfer pricing legislation does not separately address transfer pricing and thin capitalisation. Rather, thin capitalisation is treated as simply a breach of the general arm’s-length standard.

Where a transfer pricing adjustment is required to be made, that adjustment is subject to a secondary adjustment where it is deemed to be either a dividend or a donation.

Controlled foreign companies (CFCs)If one or more residents together, directly or indirectly, hold more than 50% of the voting or participation rights in a foreign company, then it is a CFC in relation to those residents. The income of a CFC is imputed to the residents in proportion to their holdings, subject to certain exclusions and tax credits, where applicable. The most notable exclusions are for high-tax CFCs and income attributable to foreign business establishments.


Foreign tax creditThe South African Income Tax Act makes provision for a rebate against CIT in respect of foreign taxes paid on foreign-sourced income or a deduction against income of foreign taxes paid on SA-sourced income. In both instances, the taxpayer must be an SA resident, the income must be included in taxable income, and that income must have been subject to a foreign tax that is not recoverable. The rebate is limited to the total normal tax payable calculated by applying the ratio of the total taxable income attributable to the foreign tax to the total taxable income. The deduction, however, may not exceed the income on which the foreign tax was levied.

Research and development (R&D)The current costs related to certain R&D activities carried on in South Africa are 150% deductible, subject to pre-approval by a government-appointed approval committee. The cost of machinery and other capital assets acquired for the purposes of R&D may be depreciated 40% in the first year of use, 20% in the second, 20% in the third year, and 20% in the fourth year. Buildings used in the process of R&D may be written-off over a 20-year period.

Headquarter company regimeA ‘headquarter company’ regime encourages the use of South Africa as a location for intermediate holding companies.


South Africa

The main benefits offered to a headquarter company are:

• Exemption from South Africa’s CFC rules.• Exemptions on the headquarter company’s dividend distributions.• Exemption from the WHT on interest in certain circumstances.• Exemption from South Africa’s transfer pricing rules on back-to-back loans,

outbound loans, back-to-back intellectual property (IP) licensing arrangements, and outbound IP licensing arrangements.

• Capital gains tax exemption upon the disposal of shares by the headquarter company.

The requirements for a headquarter company are as follows:

• The headquarter company must be SA resident.• Each shareholder in the headquarter company must hold at least 10% of the

headquarter company’s equity shares and voting rights. This means that a headquarter company can never have more than ten shareholders.

• At least 80% of the headquarter company’s assets (measured on a ‘cost’ basis and excluding cash and certain bank deposits) must be comprised of certain assets related to the foreign companies in which the headquarter company holds at least 10% of the equity shares and voting rights. Specifically, these assets must be:• the equity shares in those companies• loans to those companies, and• IP licensed to those companies.

• At least 50% of the headquarter company’s gross income must be comprised of dividends, interest, royalties, rentals, service fees, or proceeds from the sale of equity shares or IP from its 10%-plus holdings, where the gross income exceeds ZAR 5 million.

Industrial policy projectsIn 2008, a ZAR 20 billion incentive package for investors in energy efficient projects was announced. The incentive is available for industrial projects participating in the manufacturing sector (other than alcohol or alcohol-related products, tobacco or tobacco-related products, arms and ammunition, and biofuels, which have a negative impact on food security). Companies are divided into those with a qualifying status and those with a preferred status. The status is determined in terms of a point system.

The proposed project must either be a ‘brownfield project’ (expansion or upgrade of an existing industrial project) or a ‘greenfield project’ (a wholly new industrial project, which uses new and unused manufacturing assets). Approved projects may be granted a tax allowance known as an additional investment allowance equal to 55% (100% if located in an industrial development zone) of the cost of any manufacturing asset used in an industrial policy project with preferred status or 35% (75% if located in an industrial development zone) of the cost of any manufacturing asset used in any other approved industrial policy project.

The additional investment allowance may not exceed ZAR 900 million in the case of any greenfield project with a preferred status, ZAR 550 million in the case of any other greenfield project, ZAR 550 million in the case of any brownfield project with a preferred status, or ZAR 350 million in the case of any other brownfield project.

In addition to the above, a company may also claim a deduction known as an additional training allowance.


South Africa

Special Economic Zones (SEZs)An SEZ incentive has been introduced for companies carrying on business in an SEZ comprising of a reduced corporate tax rate of 15% as well as a 10% allowance in respect of the cost of new and unused buildings owned by a qualifying company or any new or unused improvements to any building owned by a qualifying company.

In addition, employment incentives have also been introduced for employers carrying on a trade in an SEZ that will allow for an employees’ tax reduction for the employer in respect of qualifying employees, up to a prescribed monthly amount.

Energy efficiency savingsThe energy efficiency savings incentive provides an income tax deduction to qualifying taxpayers. The deduction equates to ZAR 0.95 for each kilowatt hour (or equivalent) saved by the taxpayer during the relevant year of assessment against a baseline from the beginning of the year.

International shipping incentiveIncome from international shipping of a resident company that holds a share in a South African flagged ship is exempt from income tax. Qualifying shipping companies can also use a currency other than the rand as their functional currency.

Venture capital companiesIn order to assist small and medium-sized businesses to raise capital to finance businesses, a tax incentive for investors in small and medium-sized enterprises through venture capital companies was introduced.

A deduction is allowed from the income of a taxpayer in respect of expenditures actually incurred by that person in respect of shares issued to that person by a venture capital company.

Withholding taxes

Payments to residentsThe only payments to residents that are subject to WHT are in respect of dividends, although resident companies are exempt from the dividend WHT.

Royalties payable to non-residentsRoyalties and know-how payments made to non-residents for the use of or right to use IP rights in South Africa are deemed to be from an SA source. The payer of the royalty or know-how payment is obligated to deduct a WHT of 15% of this payment, which is a final tax payable by the recipient of such income.

Dividends payable to non-residentsA dividend WHT of 20% applies to any dividend paid by a resident company or dividend paid to SA residents by a non-resident company in respect of shares listed on an SA exchange. The tax is imposed on the beneficial owner of the dividend and not on the company, with the exception of in specie dividends. The payer of the dividend or regulated intermediary is obligated to deduct the 20% WHT from the payment. The treaty rate is the maximum allowable rate to be charged by the treaty countries; where this rate is higher than the domestic tax rate, the latter will apply.


South Africa

Interest payable to non-residentsA 15% WHT on interest applies to interest payable from an SA source to non-residents on certain debt instruments. The resident payer of the interest is obligated to deduct the 15% WHT from the payment.

Treaty rates for dividends, interest, and royaltiesThe WHT may be reduced by the terms of the relevant tax treaty, as follows:

RecipientWHT (%)

Dividends Interest RoyaltiesNon-treaty 20 15 15Treaty:Algeria (1, 11) 10/15 10 10Australia (1, 2, 12D) 5/15 10 10Austria (11D) 5/15 0 0Belarus (1, 2, 6, 11D, 27) 5/15 5/10 5/10Belgium (1, 11) 5/15 10 0Botswana (1, 2, 11) 10/15 10 10Brazil (1, 2, 7, 11) 10/15 15 10/15Bulgaria (1, 2, 6, 8, 11D) 5/15 5 5/7/10Canada (1, 4, 12D, 33) 5/15 10 6/10China, People’s Republic of (1, 5, 35, 38, 39, 40) 5 10 7/10Croatia (11, 26) 5/10 0 5Cyprus (1, 12, 26) 5/10 0 0Czech Republic (1, 11D, 26) 5/15 0 10Democratic Republic of Congo (1, 11, 35) 5/15 10 10Denmark (1, 11, 26) 5/15 0 0Egypt (1) 15 12 15Ethiopia (1, 2) 10 8 20Finland (1, 12, 26) 5/15 0 0France (1, 2, 12D, 28) 5/15 0 0Germany (2, 13D) 7.5/15 10 0Ghana (1, 2, 12, 32) 5/10 5/10 10Greece (1, 2, 9, 11D) 5/15 8 5/7Grenada (29, 36, 37) 15 15 15Hong Kong (12, 42) 5/10 0/10 5Hungary (1, 11D, 26) 5/15 0 0India (1) 10 10 10Indonesia (1, 12) 10/15 10 10Iran (1) 10 5 10Ireland (1, 12D, 26) 5/10 0 0Israel (2, 3) 25 25 0/15Italy (1, 14) 5/15 10 6Japan (1, 15) 5/15 10 10Kenya 10 10 10Korea, Republic of (1, 11D) 5/15 10 10Kuwait (1, 2, 10, 26) 0 0 10Lesotho (1) 15 10 10Luxembourg (1, 11D, 26) 5/15 0 0Malawi (2, 22, 29) 15 10 0Malaysia (1, 2, 11) 5/10 10 5


South Africa

RecipientWHT (%)

Dividends Interest RoyaltiesMalta (1, 12, 16, 35) 5/10 10 10Mauritius (1, 12, 41) 5/10 0/10 5Mexico (1, 2, 12) 5/10 10 10Mozambique (1, 2, 11) 8/15 8 5Namibia (1, 11) 5/15 10 10The Netherlands (1, 2, 12, 25, 26) 5/10 0 0New Zealand (1, 11, 34) 5/15 10 10Nigeria (1, 2, 12) 7.5/10 7.5 7.5Norway (1, 2, 11D, 26) 5/15 0 0Oman (1, 10, 12, 26) 5/10 0 8Pakistan (1, 12) 10/15 10 10Poland (1, 11D) 5/15 10 10Portugal (1, 2, 17D) 10/15 10 10Qatar (12, 38, 41) 5/10 10 5Romania (1) 15 15 15Russia (2, 18) 10/15 10 0Rwanda (1, 11) 10/20 10 10Saudi Arabia (1, 2, 12D) 5/10 5 10Seychelles (1, 2, 12, 26) 5/10 0 0Sierra Leone (29, 36, 37) 15 15 15Singapore (1, 12, 26) 5/15 0 5Slovak Republic (1, 11D, 26) 5/15 0 10Spain (1, 2, 11D) 5/15 5 5Swaziland (1, 11) 10/15 10 10Sweden (1, 2, 19, 28) 5/15 0 0Switzerland (1, 2, 20D) 5/15 5 0Taiwan (1, 12D) 5/15 10 10Tanzania (1, 21) 10/20 10 10Thailand (1, 11, 30) 10/15 10/15 15Tunisia (1, 31) 10 5/12 10Turkey (1, 11D) 10/15 10 10Uganda (1, 11) 10/15 10 10Ukraine (1, 20) 5/15 10 10United Kingdom (2, 22, 26) 5/10/15 0 0United States (1, 2, 23) 5/15 0 0Zambia (2, 24, 26) 15 0 0Zimbabwe (2, 24, 29) 15 15 0

Notes

‘D’ refers to direct capital holding.

1. Recipient is the beneficial owner of the royalty.2. Royalty is subject to tax in recipient country.3. 15% is levied on royalties for cinematographic or television films.4. The maximum rate for copyright royalties, royalties for use of computer software, and patents

concerning industrial, commercial, and scientific experience is 6% of the royalties paid; otherwise, 10%.

5. Maximum rate of 10% on royalty of the adjusted amount (being 70% of the gross royalties) for use of industrial, commercial, or scientific equipment.

6. The 5% rate applies to royalties for the use of a copyright. A 7% rate applies to royalties for the use of patents, trademarks, designs, models, etc.


South Africa

7. In respect of right to use industrial, commercial, or scientific equipment and transport vehicles, a 10% rate applies.

8. The lower rate of 5% applies to any cultural‚ dramatic‚ musical, or other artistic work (but not including royalties in respect of motion picture films) as well as industrial, commercial, or scientific works. The rate of 10% applies in all other cases.

9. The 5% lower rate applies to use of literary, artistic, and scientific works. The 7% lower rate applies to right of use of patents, trademarks, designs, and models.

10. No right to tax dividends in payor state if the beneficial owner of the dividend is resident in the payee state.

11. Lower rate applies to a beneficial owner that is a company and has a minimum holding of 25% of capital, and the higher rate applies in other cases.


13. Lower rate applies to a beneficial owner that is a company and has a minimum holding of 25% of voting shares, and the higher rate applies in other cases.

14. Lower rate applies to a beneficial owner that is a company and has a minimum holding of 25% of capital and a minimum 12-month holding period prior to the end of the accounting period prior to the dividend payment, and the higher rate applies in other cases.

15. Lower rate applies to a beneficial owner that is a company and has a minimum holding of 25% of voting shares and a minimum six-month holding period prior to the end of the accounting period prior to the dividend payment, and the higher rate applies in other cases.

16. SA resident payor to Maltese resident beneficial owner (Maltese resident payor to SA resident beneficial owner is limited to tax on profits).

17. Lower rate applies to a beneficial owner that is a company and has a minimum holding of 25% of capital and a minimum two-year uninterrupted holding period prior to the dividend payment, and the higher rate applies in other cases.

18. Lower rate applies to a beneficial owner who has a minimum holding of 30% of capital and a minimum direct investment of 100,000 United States dollars (USD) in the company declaring the dividend, and the higher rate applies in other cases.

19. Lower rate applies to a beneficial owner that is a company and has a minimum holding of 10% of capital, and the higher rate applies in other cases. However, a ‘most favoured nations’ clause applies, which will limit the above rates to the lowest treaty rate in terms of any other treaty.



22. Lower rate of 5% applies to a beneficial owner that is a company and has a minimum holding of 10% of capital. Lower rate of 10% applies in all other cases. 15% rate applies to all dividends from property investment companies.

23. Lower rate applies to a beneficial owner that is a company and has a minimum holding of 10% of voting power (directly), and the higher rate applies in other cases.

24. The treaty contains no provisions regarding dividends WHT, thus the domestic rate will apply.25. The Netherlands Protocol has a ‘most favoured nations’ provision whereby the rate most favourable in

any other treaty will apply over the default treaty rate. This, however, only applies to treaties concluded after this treaty.

26. No right to tax interest in payor state if the beneficial owner of the interest is resident in the payee state.27. The 5% rate applies to interest derived by a bank or any other financial institution, and the 10% rate

applies in other cases.28. No right to tax interest in payor state if the beneficial owner of the interest is resident in the payee state

and provided interest is taxable in that other state.29. No specific provision is made for interest in the DTA.30. The 10% rate applies to interest received by a financial institution (including an insurance company),

and the 15% rate applies in other cases.31. The 5% rate applies to interest on loans made by banks, and the 12% rate applies in other cases.32. The 5% rate applies if the interest is paid to a bank; the 10% rate applies in other cases.33. In Canada, a beneficial owner that is a company controls a minimum of 10% of the voting power

(directly/indirectly), but excludes non-resident owned investment corporation resident in Canada.34. In New Zealand, dividends are taxed at a flat rate of 15%.35. No right to tax interest in payor state if the beneficial owner is the government of the other state or a

government entity.36. No specific provision is made for royalties in the DTA.37. No right to tax interest on stocks and securities issued by any government other than South Africa,

even if business is carried on in South Africa, if taxed in residence state.38. Lower rates for royalties do not apply if attributable to a PE in the payor state or the right or property

on which royalty is paid is attributable to PE in payor state.39. The 10% rate applies if the beneficial owner is resident in the payee state.40. Lower rate of 5% applies to the dividend if beneficial owner is resident in payee state.41. The interest exemption in the source country is only retained for interest paid or received by a

government or central bank, or for interest on debt instruments listed on a recognised stock exchange.42. The interest exemption applies if the beneficial owner of the interest is the Hong Kong Special

Administrative Region (HKSAR) Government, the Hong Kong Monetary Authority, the SA Government, the SA Reserve Bank, or institutions wholly or mainly owned by them.


South Africa

Non-resident entertainers and sportspersonsA WHT at the rate of 15% applies to all payments made to non-resident entertainers and sports persons in respect of their activities exercised in South Africa.

Disposal of immovable property by non-residentsAny person who pays an amount to a non-resident in respect of the sale of immovable property in South Africa must withhold from the amount payable an amount equal to:

• 5% if the non-resident seller is an individual• 7.5% if the non-resident seller is a company, or• 10% if the non-resident seller is a trust.

The amount so withheld is not a final tax for the non-resident seller. Instead, this amount is regarded as an advance payment of the non-resident seller’s normal tax liability for the year of assessment during which the property is disposed of. The non-resident seller is still obligated to submit an income tax return for that year.

Tax administration

Taxable periodThe corporate tax year is the same as the company’s financial year. It may be changed upon application showing reasonable cause.

Tax returnsAnnual income tax returns must be submitted within one year from the end of the company’s tax year. The annual tax return includes a supplementary reconciling return where requested. Furthermore, schedules apply for CFCs, short-term insurers, mining companies, headquarter companies, and learnership allowances.

‘Signed off’ financial statements are required to be submitted with the annual tax return.

Payment of taxPayments are made with provisional returns filed at six-month intervals from the tax year-end based on an estimate of taxable income for the year. Interest is charged on any underpayment outstanding for more than six months after the tax year-end, except in the case of February year-ends, in which case it is seven months. Any balance (together with interest) is then paid following assessment.

Tax audit processThere is no prescribed audit process, and an audit can be initiated by any factor as determined by the SARS. The audit or inspection will commence with a request from the SARS for the taxpayer to make available any such records or information as may be required.

Statute of limitationsTax debts to the state prescribe after a period of 15 years. Tax returns submitted that have been assessed may not be reopened after a period of three years from date of assessment by the SARS or five years if it is a self-assessment by the taxpayer, unless there has been fraud, misrepresentation, or non-disclosure by the taxpayer.


South Africa

The prescription period may be extended by three years in the case of an assessment by the SARS or by two years in the case of self-assessment in respect of certain complex matters, such as transfer pricing and general anti-avoidance cases.

Topics of focus for tax authoritiesThe SARS, in their 2015/16 to 2019/20 Strategic Plan, stated that they will focus on the following areas:

• Large business and transfer pricing.• The construction industry.• Illicit cigarettes.• Undervaluation of imports in the clothing and textile industry.• Small business and cost of compliance.• Collaboration with other jurisdictions on tax base erosion.

Other issues

Intergovernmental agreements (IGAs)South Africa entered into an agreement with the United States to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA). The date of entry into force is 28 October 2014.

South Africa is also a party to the Multilateral Convention on Mutual Administrative Assistance on Tax Matters as well as a number of bilateral tax information exchange agreements.

Swaziland 345www.pwc.com/taxsummaries

Swaziland

PwC contact

Theo MasonPricewaterhouseCoopersRhus Office ParkOld Tavern Hotel SiteKarl Grant StreetMbabaneSwazilandTel: +268 2 404 3143Email: [email protected]


There have been no significant corporate tax developments in Swaziland during the past year.


Income tax is levied on all income derived from sources generated within or deemed to be generated within the country, irrespective of whether the recipient of the income is actually resident in Swaziland.

All companies generating income within Swaziland are taxed on that income at a flat rate of 27.5%.

Corporate residence

Permanent establishment (PE)PE in Swaziland is determined according to physical presence.

Other taxes

Value-added tax (VAT)VAT is charged at the standard rate of 14%.

Customs dutiesSwaziland has a provision for customs duties for various goods imported into the country. Details are available in the Harmonized Tariff Schedule (HTS).

Excise dutiesSwaziland has an excise duty provision for various goods manufactured in the country.

Goods Excise duty rate (%)Cigarettes 6.34Cigarette tobacco 8.00Cigars 6.19Other tobacco products 16.10Spirits 8.90

PwC Worldwide Tax SummariesSwaziland346

Swaziland

Goods Excise duty rate (%)Beer 8.20Alcoholic fruit beverage 8.30Wine 8.10

Property taxesThere are no property taxes in Swaziland.

Transfer taxesTransfer taxes are applied on a variable rate basis to property transfers based on the fair market value of the property being transferred.

Stamp taxesSwaziland has a provision for stamp taxes on various documents. The tax is determined either by way of a set fee or on a sliding scale percentage basis.

Payroll taxesPay-as-you-earn (PAYE) is to be deducted from employees on a monthly basis and according to the tax tables applicable to individuals, which are provided in the Taxes on personal income section of Swaziland’s Individual tax summary at www.pwc.com/taxsummaries.

Social security contributionsThere are no social security contributions in Swaziland.

Branch income

Income tax on registered branch profits is calculated as for a resident company, and a branch profits tax of 15% is assessed for deemed repatriated income. In practice, however, branches are rare since most foreign companies incorporate local subsidiary companies.

SZL*Net profit before tax 100.00Tax @ 27.5% (27.50)Repatriated income 72.50

* Swaziland lilangeni


Inventory valuationInventory valuation is not specific but is effectively at the lower of cost (i.e. first in first out [FIFO] or average cost) and net realisable value.

Capital gainsCapital gains are not subject to income tax, provided it can be demonstrated that the gains are of a capital and not an income nature (i.e. not recurring transactions).




Swaziland

Dividend incomeDividend income is taxable via withholding tax (WHT) for non-residents (see the Withholding taxes section). No tax is due if received from another local company.

Inter-company dividendsInter-company dividends are not subject to income tax.

Stock dividendsStock dividends are paid out of taxed profits. Such dividends are not subject to income tax when received by a local company, but they are subject to taxation in the hands of local individual taxpayers at the rate of 10%.

Interest incomeInterest income sourced in Swaziland is taxable.

Foreign incomeForeign income is not subject to income tax unless it is deemed to be from a Swaziland source.

Deductions

DepreciationDepreciation (wear-and-tear) allowances calculated by the net-reducing-balance method are available as follows:

Asset Depreciation rate (%)Aircraft 25Casino equipment 15Construction equipment 25Computer hardware 33.33Computer software 33.33Furniture and fittings 10Hotel soft furnishings, including carpets 10Legal and professional libraries 5Lifts and elevators 25Motor vehicles:

Buses 33.33Cars 20Light delivery vehicles 25Lorries 33.33

Office equipment 10Plant and machinery 10Sound and projection equipment 20Television sets 20Tractors 25Trailers 20Video recorders 33.33Videotapes 25


Swaziland

For the first year after the addition of an asset, the wear-and-tear allowance is calculated on a monthly basis. With respect to leased assets, the lessor’s claim for wear-and-tear allowance is usually spread over the lease period.

An initial allowance of 50% is granted for plant and machinery used in a manufacturing process, including hotel equipment. An initial allowance of 50% is granted for industrial buildings used for manufacturing purposes and hotels, together with a 4% annual allowance.

GoodwillThe write-off of any goodwill is not allowed for tax purposes.

Start-up expensesIt is departmental practice to not allow the deduction of any start-up expenses.

Interest expensesInterest is deductible as long as it is incurred in the production of income.

Bad debtSwaziland does allow a deduction for bad debts, subject to the Commissioner’s approval and provided that the debts were included in the taxpayer’s income in the year of assessment or in years past.

Charitable contributionsSubject to the Commissioner’s approval in regard to the amount allowable as a deduction in the year of grant and subsequent years, Swaziland allows a deduction for, among other things, grants made to the government for the building of schools and hospitals.

Fines and penaltiesFines and penalties resulting from late payment of any tax or levied as payable under any Act administered by the Commissioner will be a non-deductible expense.

TaxesTaxes are not deductible.

Net operating lossesLosses may not be carried back but may be carried forward for as long as trading continues (i.e. indefinitely). If any break in trading occurs, however, the losses are forfeited.

Payments to foreign affiliatesDeductions may be claimed for payments of management service fees, interest, and royalties to foreign affiliates, provided the payments are made under a written agreement, are reasonable, and receive exchange control approval for transfers outside the rand monetary area. Note that this approval is routinely given without any significant delay for bona fide transactions.

Group taxation

Swaziland does not have group taxation legislation. All companies are assessed on their individual profits and losses.


Swaziland

Transfer pricingSwaziland does not have transfer pricing legislation; however, under the anti-avoidance provision, the Revenue Authority will look for arm’s-length transactions.

Thin capitalisationSwaziland does not have thin capitalisation rules.

Controlled foreign companies (CFCs)Swaziland does not have any legislation regarding CFCs.


Foreign tax creditSwaziland does not have a foreign tax credit regime.

Development Approval OrderThe Minister of Finance, along set guidelines and with prior consent of the Cabinet, may nominate a business as a developmental enterprise (i.e. a business the Minister deems to be beneficial to the development of the economy) for a grant of a Development Approval Order. If approved, the business generally will be granted tax concessions, such as a lower corporate tax rate.

Withholding taxes

Non-resident WHTs are levied as follows.

DividendsWHT for dividends is payable at the rate of 15% (12.5% for companies registered in Botswana, Lesotho, and the Republic of South Africa).The rate drops to 10% under the double taxation agreement (DTA) with South Africa where the holding company owns more than 25% of the shares. Non-resident shareholders’ WHT is payable within 30 days of the date on which the dividend is payable.

InterestWHT for interest is payable at the rate of 10%. Non-resident WHT on interest is payable within 14 days of the date of the accrual of the interest.

Royalties and management feesWHT for royalties and management fees is payable at the rate of 15%. Upon application, 5% may be refunded if there is a DTA in place.

Entertainers and sportsmenWHT is payable at the rate of 15% on income earned in Swaziland by entertainers and sportsmen. This tax relates only to public entertainers and sportsmen not ordinarily resident in Swaziland. The payer is required to deduct the tax and pay it within 15 days.

Contractors or professionalsWHT is payable at the rate of 15% on services provided by contractors or professionals in Swaziland (materials are not taxed to the extent that materials are incidental to the overall charge). The Commissioner of Taxes must be notified of any agreement relating to construction operations or professional services under which payments are made to


Swaziland

non-resident persons within 30 days after entering into the agreement. It is required that the tax be paid within 15 days from the date of payment.

Tax administration

Taxable periodThe tax year runs from 1 July to 30 June. Companies are required to have a 30 June year-end unless another year-end date is approved by the Commissioner of Taxes; such approval is routinely given.

Tax returnsIncome tax returns should be submitted within 120 days of 30 June, unless an extension of time for submission is granted, which also is routinely given if all tax requirements for the prior year are up to date and the provisional tax has been paid in accordance with the law. The extension of time is usually granted for a further 60 days, which effectively gives the taxpayer six months to submit their income tax return.

Payment of taxNotice of the date of payment is usually given on the tax assessment.

Provisional tax paymentsWith respect to companies, provisional tax is payable in two instalments: one payment is due within six months of the company’s financial year-end, and the other payment is due no later than the last day of the company’s financial year.

The estimate of taxable income for provisional tax purposes should not be less than the taxable income assessed for the latest preceding year of assessment for which an assessment has been issued that is not less than 21 days before the date the estimate is made. This rule does not apply if the taxpayer can convince the Commissioner of Taxes that the taxable income for the current year will be less than the taxable income for the preceding year.

A provisional taxpayer becomes liable to pay a penalty if the estimate for taxable income for the second payment of provisional tax is found to be both less than 90% of the taxable income as finally determined and less than the taxable income as assessed for the immediately preceding tax year.

Tax audit processAll assessments are subject to a tax audit. Current departmental practice is to perform tax audits going back four years.

Statute of limitationsThere is no statute of limitations in Swaziland.

Topics of focus for tax authoritiesCurrently, the tax authorities are conducting full tax audits.

Tanzania 351www.pwc.com/taxsummaries

Tanzania

PwC contact

David TarimoPricewaterhouseCoopersPemba House369 Toure Drive, Oyster BayDar es Salaam, TanzaniaTel: +255 22 219 2600Email: [email protected]


The change in control rule has been changed back to three years from two years by the Finance Act 2016. The Finance Act 2015 had reduced the reference period from three years to two years.


A Tanzanian resident is taxed on worldwide income, irrespective of source. Non-residents are taxable on income with a source in Tanzania.

Income tax is charged at a rate of 30% on income of a resident corporation and of a permanent establishment (PE) of a non-resident corporation or 5% of turnover for technical and management service providers to mining, oil, and gas entities (deducted by way of withholding tax [WHT]). Certain payments to non-residents are subject to tax at the relevant non-resident WHT rates (see the Withholding taxes section for the relevant rates).

Gain from the disposal of investments in Tanzania is subject to income tax where such investments fall within the source rules, and, in such a case, the gain will be taxed at a rate of 30%.

Reduced rate for newly listed companiesA reduced corporate tax rate of 25% applies for three consecutive years for companies newly listed on the Dar es Salaam Stock Exchange (DSE). To qualify, at least 30% of the company’s shares must be issued to the public.

Alternative minimum taxAlternative minimum tax applies at a rate of 0.3% to the turnover of companies with perpetual unrelieved tax losses for the current and preceding two income years. Exemption applies to (i) agricultural companies and (ii) companies engaged in provision of health or education.

Local income taxesThere are no local income taxes levied by local authorities. Please see Local taxes in the Other taxes section for a description of the local service levy based on turnover.

Corporate residence

A company is tax resident if it is incorporated or formed under the laws of Tanzania or if the management and control of its affairs is exercised in Tanzania.

PwC Worldwide Tax SummariesTanzania352

Tanzania

Permanent establishment (PE)A non-resident entity has a PE in Tanzania if it carries on business in Tanzania. This includes a place where a person (i) is carrying on business through a dependent agent; (ii) has used or installed, or is using or installing, substantial equipment or machinery; and (iii) is engaged in a construction, assembly, or installation project for six months or more, including a place where a person is conducting supervisory activities in relation to such a project.

Other taxes

Value-added tax (VAT)VAT is chargeable on all taxable goods and services supplied in, or imported into, mainland Tanzania. The standard rate of VAT is 18%, but the export of goods and certain services is eligible for zero rating. Businesses with an annual taxable turnover of more than 100 million Tanzanian shillings (TZS) must register for VAT.

There is also mandatory registration for professional services providers (e.g. lawyers and accountants) and government entities/institutions carrying on economic activity. A non-resident who carries on economic activity in mainland Tanzania without a fixed place and makes taxable supplies in excess of the VAT registration threshold is required to appoint a VAT representative.

For imported goods, VAT is payable at the time of importation together with any customs and excise duties. VAT payable with respect to capital goods (as defined), which are imported or purchased in Tanzania, may be deferred, subject to certain procedures being followed. The Commissioner for VAT has the discretion to register (as intending traders) investors whose projects have not commenced production but who wish to be VAT-registered in order to reclaim the tax they incur on start-up costs.

For imported services, VAT is accounted for by registered businesses through a ‘reverse-charge’ mechanism, such accounting is only relevant where a taxpayer has exempt supplies of 10% or more of total supplies.

Depending on the industry, there are a number of exempt supplies. These include (this list is not exhaustive):

• Agricultural implements, agricultural inputs, livestock, basic agricultural products and foods for human consumption; implements for fisheries and bee-keeping; dairy equipment, maize flour, and wheat flour.

• Food, clothing, and shoes donated to non-profit organisations for free distribution to orphanages or schools for children with special needs in mainland Tanzania.

• Goods imported by non-profit organisations for the provision of emergency and disaster relief (conditional).

• Goods imported by religious organisations for the provision of health, education, water, and religious services (conditional).

• Educational services provided by a relevant approved educational institution; education materials.

• Laboratory equipment and reagents imported by a registered educational institution and to be used solely for educational purposes.

• Goods eligible for relief under the East African Customs Management Act (where imported by a registered and licensed explorer or prospector for exclusive use in oil, gas, or mineral exploration or prospecting activities).


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• Various goods imported by a natural gas distributor (including compressed natural gas [CNG] plants equipment, natural gas pipes, transportation and distribution pipes, CNG storage cascades, CNG special transportation vehicles, natural gas metering equipment, CNG refuelling of filling, gas receiving units, flare gas system, condensate tanks and leading facility, system piping and pipe rack, and condensate stabiliser).

• Healthcare, medicine, or pharmaceuticals products, not including food supplements or vitamins; articles designed for people with special needs; funeral services.

• Firefighting vehicles imported by the government and firefighting equipment.• Sale of vacant land.• Lease, license, hire, or other form of supply, to the extent that it is a supply of the

right to occupy and reside in residential premises.• Water (except bottled or canned water or similarly presented water).• Solar equipment (in particular, solar panels, modules, solar charger controllers,

solar inverters, solar lights, vacuum tube solar collectors, and solar batteries). Wind generators and liquid elevators are no longer included in the list of exemptions (unlike the 1997 Act).

• All unprocessed vegetables and unprocessed edible animal products, including live fish, fruits and nuts, cereals, and seeds, as well as raw soya beans.

• Vitamins and food supplements (micronutrient compound) that have been approved by the Minister for Health, Community Development, Gender, Elderly, and Children.

• Water treatment chemicals, as approved by the Minister responsible for health.• Aviation insurance.• Bitumen.• Dam liner.• Insurance for workers compensation.• Pasteurised goat and cow milk, excluding milk with additives and long-life milk.

A business that only makes exempt supplies is unable to register for VAT and, consequently, unable to recover the VAT incurred on inputs.

Export of goods and certain services is zero-rated (i.e. taxable at a rate of 0%).

Registered businesses must submit VAT returns, and pay any tax due, on a monthly basis.

The new VAT Act has broadened restrictions on claiming input tax. For example, one cannot claim VAT paid on entertainment, sporting, social, or recreational clubs or associations, nor on spare parts and repair or maintenance costs in respect of passenger vehicles.

The input tax claim time limit is six months. However, this time limit starts to run not only by reference to the date of the tax invoice/fiscal receipt but also by reference to the date of the time of supply.

Input tax incurred in the six months prior to VAT registration can be claimed no later than in the third VAT return submitted following registration.

A company with taxable supplies of more than 90% of total supplies is entitled to full input tax credit.

A company with taxable supplies less than 10% of total supplies is not entitled to claim any input tax incurred.


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A company with taxable supplies between 10% and 90% of total supplies is entitled to partial input tax recovery. Only one apportionment method, namely the average method can be used. Imported services are not taken into account as supplies when determining the allowance of input tax for partial exemption purposes.

Businesses entitled to VAT refunds can claim any remaining credit six months after a refund first became due, subject to all intervening returns being rendered. Any claim for a VAT refund must be supported by an auditor’s certificate. Businesses in a consistent refund position (e.g. exporters) can apply for approval to lodge their refund claims on a monthly basis.

Zanzibar has its own VAT Act, but it is similar to the Mainland Tanzania Act.

Customs dutiesTanzania is a member of the East African Community, which became a Customs Union on 1 January 2005 on the implementation of the East African Customs Union Protocol. This protocol provides for a common external tariff (CET), elimination of internal tariffs, rules of origin, anti-dumping measures, a common customs law, and common export promotion schemes.

The import duty rates applicable under the CET are as follows:

Category Rate (%)Raw materials, capital goods, agricultural inputs, pure-bred animals, medicines 0Semi-finished goods 10Finished final consumer goods 25Machinery and spare parts imported by licensed mining companies and used in mining activities

0

Machinery, spares, and inputs imported by licensed company for direct use in oil, gas, and geothermal exploration

0

Tanzania is also a member of the Southern African Development Community (SADC). Where goods are subject to a lower rate of duty from another trade bloc, such as the SADC, the lower duty rate applies until such a time as the trading arrangements between the trading blocs are harmonised.

Excise dutiesExcise duty rates apply as follows:

Item Rate for FY 2016/17 (TZS)Sugared mineral water, sugared carbonated drinks, and sugared aerated water

58 per litre

Other not containing sugar, including club soda 58 per litreMalt beer 694 per litreClear beer (with 100% local unmalted barley) 429 per litreWine with more than 25% imported grapes 2,236 per litreWine with domestic grapes content exceeding 75% 202 per litreSpirits, vodka, and whiskies 3,315 per litreCigarettes without filter containing more than 75% domestic tobacco 11,854 per milCigarettes with filter containing more than 75% domestic tobacco 28,024 per milOther cigarettes not mentioned above 50,200 per milCut rag/filler 25,608 per kg


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Item Rate for FY 2016/17 (TZS)Motor spirit (gasoline) premium 339 per litreMotor spirit (gasoline) regular 339 per litreGas oil (diesel) 215 per litreJet fuel 0 per litreIlluminated kerosene 425 per litreOther medium oil and preparation 9.32 per litreIndustrial diesel oil 392 per litreHeavy furnace oil 0 per litreLubrication oil 669 per m³Lubrication greases 0.79 per kgMusic and film products 44 per unit

Item Rate for FY 2016/17 (%)Satellite and cable television broadcasting 5Electronic communication services 17Charges or fees by a telecommunication service provider for money transfer service

10

Charges or fees by a financial institution for services provided by such institution

10

Disposable plastic bags 50Liquefied petroleum gas (LPG) 0Motor car with cylinder capacity exceeding 1,500cc but not exceeding 2,000cc

5

Motor vehicle with engine size greater than 2,000cc but not exceeding 3,000cc

5

Old passenger motor vehicles (more than five years) 10Old motor vehicles (eight years but not more than ten years) 15Old motor vehicles (more than ten years) 30Imported used spare parts (for vehicles, motorcycles, domestic and electrical appliances)

25

Imported furniture (per unit) 20Aircraft (including helicopters, aeroplanes) but excluding commercial aircraft, yachts, and other vessels for pleasure or sport

20

Fuel levyFuel levy is charged on petroleum and diesel at a rate of TZS 313 per litre.

Petroleum levyPetroleum levy is charged on petrol and diesel at TZS 100 per litre and on kerosene at TZS 150 per litre.

Stamp dutyExamples of instruments giving rise to stamp duty obligations include conveyances, leases, share transfers, and issue and transfer of debentures. For most of these instruments, the applicable stamp duty rate is 1% of the consideration.

Infrastructure levyThe ‘infrastructure levy’ applies at the rate of 1.5% of the value of imported goods (cost, insurance, and freight [CIF]). The levy is not applicable to imported goods that have relief or exemption under the East African Community Customs Management Act 2004 (EACCMA 2004) and goods in transit.


Tanzania

Payroll taxes and social security contributionApart from individual income tax (deducted at source by the employer), payroll taxes include:

• Skills and development levy at 4.5% of payroll cash costs.• 20% social security contribution, which is normally split equally between employer

and employee (i.e. 10% each).• Workers compensation fund tariff charged at 1% or 0.5% of cash sums paid to

employees. The tariff is payable on a monthly basis (1% for private sector and 0.5% for public sector).

Gaming taxUnder the recently introduced gaming tax, gaming prize winners are taxed at 18% of the prize offered.

Local taxes

Property taxesThe local government levies a property tax based on the value of a premises. The rates vary depending on the value and location of the property.

Service levyThe local government is entitled to charge a 0.3% service levy based on turnover generated in the relevant district.

Cess levyFor agricultural produce and livestock, there is a cess levy, currently capped at 5% of the producer price.

Branch income

The income tax liability of a person with a PE in Tanzania is calculated as if the person and the PE are independent but as if the PE is resident in Tanzania. The income of the PE is taxed at the normal income tax rate for entities, namely 30% on net income or 5% of turnover for technical and management service providers to mining, oil, and gas entities.

The PE is also subject to a tax on ‘repatriated income’, which applies at a rate of 10% (the same rate as a company would withhold on dividends).

In certain circumstances, business activities of the head office may be attributed to the branch. Arrangements between a PE and head office generally are not recognised, other than the transfer of an asset or liability between the two. Amounts derived (or payments received) and expenditures incurred (or payments made) that relate to assets held by, or liabilities owed by, the business of the PE are attributed to the PE.


Subject to any provision to the contrary in the Income Tax Act, income is to be calculated in accordance with generally accepted accounting principles (GAAP). Local GAAP is in accordance with International Financial Reporting Standards (IFRS). Corporations must apply an accrual basis of accounting.


Tanzania

Inventory valuationTrading stock is valued at the end of the year at the lower of cost and market value. No explicit method is stated for determining inventory cost, and, so far, for tax purposes, such cost will match the cost determined in accordance with GAAP. Special rules apply for the valuation of long-term work in progress.

Capital gainsThere is no separate capital gains tax in Tanzania. Instead, income tax is charged on the taxable profit arising on a gain arising from the realisation of an ‘investment asset’ (a term that [subject to certain exceptions] includes shares, interests in land and buildings, and a beneficial interest in a non-resident trust). The gain is determined as the difference between costs incurred and sale proceeds.

Dividend incomeDividend payments are taxed by way of WHT, and this is a final tax. The normal rate of WHT on dividends is 10%.

Where a dividend is paid by a resident corporation to another resident corporation holding 25% or more of shares and voting rights in the corporation paying the dividend, the WHT rate is 5%.

Dividends paid by a company listed on the DSE are subject to 5% WHT (regardless of whether they are paid to a resident or non-resident).

Interest incomeInterest income is treated as income from investment. The term ‘interest’ is defined as payment for the use of money and includes payment made or accrued under a debt obligation that is not a repayment of capital, as well as any gain realised by way of a discount, premium, swap payment, or similar payment.

Interest income is taxed by way of WHT at 10%.

Royalty incomeRoyalty income is treated as income from investment and is taxed by way of WHT at 15% (regardless of whether it is paid to a resident or non-resident). WHT on royalty payments to a non-resident is final tax.

The term ‘royalty’ means any payment made by the lessee under a lease of an intangible asset and includes payments for:

i. the use of, or the right to use, a copyright, patent, design, model, plan, secret formula or process, or trademark

ii. the supply of know-how, including information concerning industrial, commercial, or scientific equipment or experience

iii. the use of, or right to use, a cinematography film, videotape, sound recording, or any other like medium

iv. the use of, or right to use, industrial, commercial, or scientific equipmentv. the supply of assistance ancillary to a matter referred to in paragraphs (i) to (iv), orvi. a total or partial forbearance with respect to a matter referred to in paragraphs (i)

to (v), but excludes a natural resource payment.


Tanzania

Foreign incomeA resident person’s foreign-source income or loss (from employment, business, and investment) is calculated as that person’s worldwide income or loss less any income sourced in Tanzania and plus any loss sourced in Tanzania.

A resident person may claim a foreign tax credit on any foreign tax paid by the person on foreign income. However, such credit should not exceed the Tanzanian tax rate applicable to that income. Any unrelieved amount of foreign tax credit may be carried forward (subject to ‘change in control’ provisions as detailed in the Group taxation section). An election may be made to relinquish foreign tax credit and claim a deduction for the amount of foreign income tax.

There are no provisions for the deferral of the taxation of foreign income.

Deductions

In calculating taxable profit, deductions are allowed for revenue expenditures incurred wholly and exclusively in the production of income, with some statutory exceptions. For capital expenditures, there are specific tax depreciation allowances.

There are special rules with regard to the valuation of trading stock and long-term contracts and in relation to the treatment of instalment sales and finance leases.

There is ring-fencing of mining or petroleum operations by reference to the relevant mining or petroleum licence area.

DepreciationThe categories of depreciable assets and their tax depreciation rates are set out in the table below.

Expenditures on plant and machinery are generally written off on a reducing-balance basis at rates of 37.5%, 25%, or 12.5%, depending on the category of the asset. Certain plant and machinery for manufacturing, fish farming, and tourist hotels benefit from a 50% allowance in the first year, with the normal rates applying to the remaining balance in subsequent years. There is an immediate write-off of expenditures on plant and machinery used in agriculture.

Expenditures on buildings qualify for a depreciation allowance of 5% per year on a straight-line basis. For intangible assets, the write-off is over the useful life of the asset.

Apart from the immediate write-off of plant and machinery, agricultural businesses also benefit from the immediate write-off of agricultural improvement expenditures (including the costs of clearing land, excavating irrigation channels, and planting perennial crops or tree bearing crops). Buildings, structures, dams, water reservoirs, fences, and similar works of a permanent nature used in agriculture, livestock, or fish farming are written off on a straight-line basis over five years.

A 100% capital deduction applies to capital expenditure (i) by mining companies on prospecting, exploration, and development and (ii) on petroleum prospecting and exploration.


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Depreciation allowances rates

Class Depreciable assets Rate (%)1 Computers and data handling equipment, together with peripheral

devices; automobiles, buses, and minibuses with a seating capacity of less than 30 passengers; goods vehicles with a load capacity of less than seven tonnes; construction and earth-moving equipment.

37.5

2 Buses with a seating capacity of 30 or more passengers, heavy general purpose or specialised trucks, trailers, and trailer-mounted containers; railroad cars, locomotives, and equipment; vessels, barges, tugs, and similar water transportation equipment; aircraft, other self-propelling vehicles; plant and machinery (including windmills, electric generators, and distribution equipment) used in manufacturing or mining operations; specialised public utility plant and equipment; and machinery or other irrigation installations and equipment.

25

3 Office furniture, fixtures, and equipment; any asset not included in another class.

12.5

4 Natural resource exploration and production rights and assets in respect of natural resource prospecting, exploration, and development expenditure. (However, note that the Income Tax Act 2004 does provide for predecessor capital deduction provisions in the Income Tax Act 1973 to continue for the holders of mining rights.)

20

5 Buildings, structures, dams, water reservoirs, fences, and similar works of a permanent nature used in agriculture, livestock farming, or fishing farming.

20

6 Buildings, structures, and similar works of permanent nature other than those mentioned in Class 5.

5

7 Intangible assets other than those in Class 4. 1 divided by the useful life of the

asset in the pool and rounded down to the

nearest half year8 Plant and machinery (including windmills, electric generators, and

distribution equipment) used in agriculture; electronic field devices purchased by a non-VAT-registered trader; equipment for prospecting and exploration of minerals or petroleum.

100

Interest in landInterest in land does not qualify for depreciation allowance as it is excluded from the definition of ‘depreciable asset’.

GoodwillGoodwill does not qualify for depreciation allowance as it is excluded from the definition of ‘depreciable asset’.

Start-up expensesStart-up expenses are deductible to the extent that they meet the general deduction criteria (i.e. they are revenue in nature and were incurred wholly and exclusively in the production of income). The definition of ‘business’ includes a prospective business.

Interest expensesInterest expenses are deductible on an accrual basis, subject to thin capitalisation rules as detailed in the Group taxation section.


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Bad debtIn order to claim relief for a bad debt, it is necessary to demonstrate that all reasonable steps have been taken to pursue payment and that there is a reasonable belief that the debt claim will not be satisfied.

Charitable contributionsThe Income Tax Act allows deduction for contributions made:

i. to charitable institutions (approved by the Commissioner to operate as such) and social development projects

ii. under Section 12 of the Education Fund Act 2001, oriii. to local government authorities under statutory obligations to support community

developments projects.

The deduction available under item (i) above is restricted to 2% of the company’s taxable income before such deduction.

Fines and penaltiesFines and similar penalties payable to a government or a political subdivision of any country for the breach of any law or subsidiary legislation are not deductible.

TaxesTaxes payable under the Income Tax Act 2004 are not deductible.

Net operating lossesThere is no limit on the carryforward period for tax losses. However, there is ring-fencing of tax losses as follows:

• Losses from agricultural business can only be offset against profits derived from agricultural business.

• Losses from one mining licence area can only be offset against profits from the same mining licence area.

• Losses from one petroleum licence area can only be offset against profits from the same petroleum licence area.

• Foreign-source losses can only be offset against foreign-source profits.• Losses on investments can only be offset against investment income.• Foreign-source losses on investments can only be offset against foreign-source

investment income.

In addition, based on the Finance Act 2016, the deductibility of the losses carried forward is restricted (for holders of a petroleum exploration licence, mineral licence, and licence in respect of midstream and downstream activities) such that only 70% of the taxable profits of the company can be sheltered by losses brought forward (with any excess losses carried forward to future years).

In certain circumstances, tax losses may be forfeited on a change in the underlying control of an entity.

Tax losses can be carried back only in long-term contracts in a case where a contract is completed and a person has unrelieved losses for that period or a previous period that is attributable to the long-term contract. These losses can then be carried back to a previous year of income and treated as unrelieved loss for that year.


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Payments to foreign affiliatesPayments to foreign affiliates are deductible to the extent they are wholly and exclusively incurred in the production of the company’s income. The deduction is subject to transfer pricing provisions as detailed in the Group taxation section.

Group taxation

There are no provisions for tax consolidation or group relief in Tanzania.

Transfer pricingWith respect to transactions between related parties, there is an obligation to ‘quantify, apportion, and allocate amounts’ for income tax purposes on an arm’s-length basis. The Transfer Pricing Regulations and Guidelines require a taxpayer with related-party transactions to have transfer pricing documentation in place at the time of filing the tax return and provide this within 30 days from the date of request by the Tanzania Revenue Authority (TRA).

Thin capitalisationThere is a thin capitalisation restriction on the amount of deductible interest for what are termed ‘exempt-controlled resident entities’, where the debt-to-equity ratio exceeds 7:3. There are specific definitions of ‘debt’ and ‘equity’ for the purposes of thin capitalisation.

Controlled foreign trusts and corporationsThere are provisions that relate to the treatment of unallocated income of controlled foreign trusts and corporations.

Change in control provisionsThe change in control provisions are triggered at the moment the underlying ownership of an entity changes by more than 50% as compared to any time during the previous three years. Where there is such a change, the consequences are that:

• the accounting period of the entity is split at the point of such a change, so that the parts of the year of income before and after the change are treated as separate years of income, and

• there is deemed realisation of assets and liabilities at market values.

In certain cases, such a change can also result in the forfeiture of unutilised tax losses and tax credits.

The Commissioner has to be notified immediately before and after the change in control has occurred.

Other anti-avoidance provisionsOther anti-avoidance provisions exist to address the following:

• Income or dividend stripping arrangements.• Income splitting.


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Foreign tax creditSee Foreign income in the Income determination section for a description of the foreign tax credit regime.

Agriculture, manufacturing, mining, and tourism incentivesTax incentives by way of generous capital deduction provisions are given for specific sectors, namely agriculture, manufacturing, mining, petroleum, and tourism. See the Deductions section for more information.

Export processing zones (EPZs) and special economic zones (SEZs)There are special benefits for EPZs and SEZs. Included in the benefits available to a person licensed to carry on business in an EPZ, as well as to SEZ investors selling in export markets, are a ten-year income tax holiday and WHT holiday, subject to a requirement to export at least 80% of production.

Withholding taxes

WHT rates

Payment Resident (%) Non-resident (%)Dividend:

To a company controlling 25% or more of the voting power and holding 25% or more of the shares

5 10

From a DSE listed company 5 5Otherwise 10 10

Interest 10 10Rent:

Land and buildings 10 10Aircraft lease 10 10Other assets 0 10

Royalty 15 15Natural resource payment 15 15Service fees 5 15Director fees (other than full time service) 15 15Insurance premium 0 5Money transfer commission paid to money transfer agent 10 N/APayments for goods by government institutions 2 N/A

Double tax treaty (DTT) rates

RecipientWHT (%)

Dividend Interest Royalties Management / technical feesDomestic rate (1) 10 10 15 15

Treaty:Canada 20/25 (2) 15 20 20Denmark 15 12.5 20 20Finland 20 15 20 20India 5/10 (3) 10 10 0Italy 10 15 15 15 (6)


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RecipientWHT (%)

Dividend Interest Royalties Management / technical feesNorway 20 15 20 20South Africa 10/20 (2) 10 10 0Sweden 15/25 (4) 15 20 20Zambia 0 (5) 0 (5) 0 (5) 0

Notes

1. The domestic WHT rate applies unless the DTT rate is lower, in which case the lower DTT rate applies.2. The lower rate applies if the beneficial owner is a company that controls, directly or indirectly, at least

15% of the voting power in the company paying the dividends; otherwise, the higher rate applies.3. The lower rate applies if the recipient is a company that owns at least 25% of the shares of the

company paying the dividends; otherwise, the higher rate applies.4. The lower rate applies if the recipient is a company that owns at least 25% of the shares of the

company paying the dividends during the six month period immediately preceding the date of payment of the dividends; otherwise, the higher rate applies.

5. The domestic rate applies if income is exempt from tax in Zambia.6. The domestic rate applies in the absence of a rate specified in the DTT.

Tax administration

Taxable periodWhile the year of income for tax purposes is the calendar year, an entity may apply to use its own accounting period rather than the calendar year.

Tax returnsA statement of estimated tax payable, which contains an estimate of the chargeable income and the tax payable thereon, is due for submission within three months from the beginning of the accounting period. A final tax return must be furnished within six months from the end of the accounting period.

WHT returns must be submitted every half year. The due date for filing the WHT return is 30 days after each six-month calendar period (e.g. the January to June return is due by 30 July).

A late filing penalty applies monthly at an amount equal to the higher of (i) TZS 225,000 or (ii) 2.5% applied to unpaid tax. If estimated tax is significantly underestimated, a penalty may also apply.

Payment of taxInstalment tax is payable in four equal instalments not later than three months, six months, nine months, and 12 months from the beginning of the accounting period. Final tax is payable on the date on which the final return is due for submission, namely six months after the end of the accounting period.

WHT is due seven days after the month of deduction.

Interest on late payment is charged at the Bank of Tanzania discount rate.

Tax audit processThe normal practice is for the TRA to carry out a review every two or three years.


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Statute of limitationsThere is a five-year time limit for the TRA to adjust an income tax return filed by a taxpayer. The five years runs from the due date of filing the final tax return.

Topics of focus for tax authoritiesCurrently, the topics of particular focus for the TRA include transfer pricing, VAT compliance, WHT on payments to both residents and non-residents, and compliance on payroll taxes.

Functional currencyTaxable income and deductible expenditure is quantified in Tanzanian shillings. Upon request by the taxpayer, the Commissioner has the power, by notice in writing, to permit quantification in a foreign currency convertible to Tanzanian shillings.

Tunisia 365www.pwc.com/taxsummaries

Tunisia

PwC contact

Mabrouk MaalaouiImmeuble PricewaterhouseCoopersRue du Lac d’Annecy,Les Berges du Lac,Tunis1053 TunisiaTel: +216 71 160 105Email: [email protected]


A new law ruling investments in Tunisia was promulgated at the end of 2016 (Investment Law n° 2016-71 of 30 September 2016), which replaced the major part of the Tax Incentives Code.

A new law was promulgated in 2017 (applicable starting from 1 April 2017) ruling tax incentives (Law n° 2017-8 of 14 February 2017).

The main developments under these laws are included in the Tax credits and incentives section.


Tunisian-resident companies are subject to corporate tax in Tunisia on the basis of profits generated from permanent establishments (PEs) located in Tunisia and those attributable to Tunisia by virtue of a double tax treaty (DTT). Non-Tunisian-resident companies are subject to corporate tax on the basis of their Tunisian-sourced income.

PEs of non-Tunisian-resident companies are subject to corporate tax in the same way and under the same conditions as Tunisian-resident companies. However, certain particularities, related mainly to deductions, exist (see the Branch income section).

Corporate tax is also due by non-resident, non-PE companies on Tunisian-sourced income through withholding taxes (WHTs).

Corporate tax is broadly levied on the total net income resulting from the statutory financial statements of the company, duly adjusted according to the specific tax rules.

Positive/negative items of income are taxed/deducted based on the accrual basis. Income items accruing in a tax period where the above principle is not met are not allowed for tax deduction nor taxed in that tax period. Tax deduction/taxation is correspondingly deferred to the future tax periods where the principle will be met.

Income items have to be certain in their occurrence and objectively determined or determinable in their amount.

Corporate tax ratesThe general corporate tax rate is 25%. However, specific rates are foreseen for specific sectors of activity. Indeed, corporate tax is due at the rate of:

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• 10% for:• companies carrying out craft activities, agricultural and fishing activities, and

fitting out fishing boats• trading groups of retail businesses organised as service cooperatives, governed by

the general cooperation legislation• service cooperatives formed between producers for the wholesale of their

production• consumer cooperatives governed by the general cooperation legislation, and• benefits derived from exports for revenues realised starting from 1 January 2014

(except wholly exporting companies where the ten year tax holiday period has not expired).

• 35% for:• certain domestic financial institutions• offshore financial institutions governed by the code related to financial services

destined to non-residents, and this only for the benefits derived from services provided to non-resident persons

• investment companies• insurance and reinsurance companies• debt collection companies• telecommunication companies• companies rendering services to companies operating in the oil and gas field• companies operating in the production and the transport of hydrocarbons and

governed by particular conventions, as well as companies operating in the transfer of hydrocarbons via pipeline, and

• companies operating in the oil refining sector and the wholesale of hydrocarbon products.

Minimum corporate taxA minimum corporate tax is due at the rate of 0.2% of the local turnover, including value-added tax (VAT), in case:

• the company realises losses or• the corporate tax due at the rate of 25% or 35% is less than the minimum corporate

tax of 0.2% of the local turnover, including VAT.

However, the minimum corporate tax is reduced to 0.1% of the turnover of companies subject to corporate tax at the rate of 10% (e.g. exporting companies after expiry of the ten-year tax holiday period) and companies selling products subject to the government homologation of prices with a gross margin not exceeding 6%.

The minimum corporate tax is not due by companies benefiting from the whole exemption of profits deriving from operations (e.g. companies established in the regional development zones, companies operating in the agricultural sector) during the period of tax holidays. These latter are fixed by decree.

Local income taxesFor a description of local taxes, see Vocational training tax, Local authority tax (LAT), and Hotels tax in the Other taxes section.


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Corporate residence

A company is tax resident in Tunisia if it is registered or has its effective place of management therein.

Permanent establishment (PE)No definition of PE is given by the Tunisian domestic law. In practice, the Tunisian tax authorities refer to the definitions given by DTTs.

Other taxes

Value-added tax (VAT)

VAT scope and ratesVAT is levied under the Tunisian VAT Code and is due on all transactions taking place in Tunisia.

The sale of goods is considered as taking place in Tunisia, and subject to VAT, if the goods sold are delivered in Tunisia. The sale of services is considered as taking place in Tunisia, and subject to VAT, if the services sold are exploited or used in Tunisia.

The standard rate of VAT is 18%. Lower rates of 6% and 12% apply to specifically designated operations.

Some operations, products, or services are out of the scope of VAT in Tunisia, and some others are expressly exempt from VAT.

Some goods and services may be acquired VAT free, based on a certificate delivered for the purpose by the relevant tax authorities. This exemption is granted mainly to wholly exporting companies, oil and gas companies, their contracts, and their subcontractors.

Registration for VAT purposes may be either obligatory or optional.

Voluntary registration is allowed where persons:

• carry out activities that are outside the scope of the Tunisian VAT, in which case the option has to be a full option, which means that all the activities carried out by these persons will be subject to VAT, or

• carry out operations that are exempt from VAT and that are destined for export, or supply products and services that are exempt from VAT to persons liable to VAT, in which case the option may be a partial or a full option.

Output VATOutput VAT is calculated on the basis of the amount of the invoice excluding VAT.

Input VATIndividuals and companies that are subject to VAT may deduct the input VAT incurred on the purchase of goods and services necessary to carry out activities subject to VAT.

VAT declarationVAT is declared and paid on a monthly basis.


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RefundsIf the input VAT exceeds the output VAT, the VAT credit resulting from the difference between the input VAT and the output VAT may be reimbursed on the basis of a written request made to the tax authorities.

The VAT credit is refundable if it arises from:

• exportation operations of goods and services, sales made to clients allowed to acquire goods and services VAT-free, and WHT made on the remunerations paid to companies that are neither resident nor established in Tunisia (such VAT credit is refundable if it is shown on one monthly tax return)

• investments destined for the carrying out of new projects under the conditions set out by the new Investment Law (such VAT credit is refundable if it is shown on at least three successive monthly tax returns), or

• other operations (such VAT credit is refundable if it is shown on at least six successive monthly tax returns).

In order to benefit from the refund of VAT credits, the taxpayer has to file supporting documents, such as declarations relating to exportation of goods, documents proving that the service rendered by the Tunisian taxpayer was used or consumed outside Tunisia, authorisations to sell VAT-free, and WHT certificates.

To benefit from the refund of VAT credits, the taxpayer must already have submitted all tax returns and paid all taxes due at the time of submission of the request for the refund.

An advance payment of 15% of the VAT credit is to be paid to the taxpayer as soon as the taxpayer presents the request for refund if the VAT credit arises from operations other than export, suspension of activity, and operations of companies that are neither resident nor established in Tunisia. This rate is to be increased to 50% if the taxpayer is a company of which the financial statements are subject to legal audit, and to 100% if the VAT credit is originated from exports.

Time limitsThe taxpayer may claim the VAT credit within three years starting from the date from which the VAT credit becomes refundable.

Customs duties/Import tariffs

Import VATImportation of goods and services are subject to import VAT unless:

• the imported good is expressly exempt, such as for:• fresh milk, uncondensed and unsweetened, whether skimmed or full-fat• milk flour• devices intended for use by physically disabled persons• pure-bred breeding animals• equipment with nothing similar manufactured locally, expressly designated, or• boats destined to maritime navigation and fishing, and other pleasure boats, or

• the importer benefits from the acquisition of goods necessary to its activity VAT-free (e.g. oil and gas companies).


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Customs dutiesCustoms duties are due on importations other than those made from the European Union (EU).

Some equipment expressly designated by the Tunisian domestic law is exempt from customs duties, whether imported from EU countries or not.

Customs duties are not due in cases where the importer is expressly exempt, even if the goods are imported from outside the European Union.

For temporary importation of equipment, the customs duties due are to be calculated in proportion to the period spent in Tunisia. 1/60 of the total customs duties are due per month spent in Tunisia.

Excise taxesThere are no provisions for excise taxes in Tunisia.

Property taxesA real estate tax (RET) is calculated by the relevant municipalities and is notified annually to the taxpayers at the beginning of the civil year.

For companies subject to the payment of the local authority tax (LAT) (see below) and in case the LAT paid over the year is less than the RET notified by the municipalities, then the differential is due and is payable as complementary LAT. In other words, the RET constitutes a minimum of due LAT per year.

Transfer taxesThe registration of some operations is compulsory. In these cases, the registration fees are expressly determined by the Registration and Stamp Fees Code.

Registration remains optional for certain operations. In case of optional registration, the registration fees due to be paid are equal to 20 Tunisian dinars (TND) per page and per copy.

In case of compulsory registration, the fees due depend on the nature of the transaction and the goods involved.

Some transactions are subject to proportional registration fees, for example:

• 5% on the transfer of immovable properties. However, this rate is reduced to 3% for the acquisition of social housing from real estate developers for the portion exceeding TND 200,000. An additional registration fee is due at the rate of 2% for the transfer of immovable properties (other than immovable properties used for business purposes and subject to a favourable tax regime) which value ranges between TND 500,000 TND and TND 1 million and 4% for immovable properties which value exceeds TND 1 million.

• 2.5% for the transfer of goodwill (fonds de commerce).

Transactions that are not subject to proportional registration fees, as well as transactions for which registration is optional, are subject to insignificant fixed registration fees (TND 20 per page).


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Stamp dutiesStamp duties are due, in general, on certain contracts expressly designated, as well as invoices, unless the customer is expressly exempt.

In general, stamp duties are TND 0.5 for invoices, subject to exemptions provided for by the law, including invoices related to export operations.

Certain documents are expressly exempt from stamp duties, mainly judgments, checks, etc.

Payroll taxesThere are no payroll taxes applicable in Tunisia other than those mentioned below.

Social security contributionsThe Tunisian social security system is financed by contributions from both employers (16.57%, reduced to 0.5% for wholly exporting companies) and employees (9.18%) based on salaries. Employers collect and pay the social security contributions from each wage-earner.

Contributions for Accident and Professional Insurance are collected in the same manner.

Social logging taxEmployers established in Tunisia, regardless of being liable or not to income tax, are subject to a social logging tax, calculated at 1% of the gross amount of salaries paid to its employees, including benefits in kind.

The social logging tax is filed on the monthly tax return through which VAT and other direct taxes, except corporate tax, are filed.

This tax is payable monthly before the 28th day of the following month.

Vocational training taxEntities subject to corporate tax are subject to vocational training tax, calculated at 2% of the gross amount of salaries paid to its employees, including benefits in kind. The rate of this tax is 1% for manufacturing industrial companies.


Local authority tax (LAT)LAT is payable by entities subject to corporate tax, except entities operating in the tourism sector. The tourism sector is defined as accommodation, entertainment, tourist transportation, thermals, congressional tourism, companies managing hotels and entertainment centres, and travel agencies.

If a company is engaged in several activities, some of which are subject to LAT and the remaining are not subject to LAT, the taxable base to be considered is constituted only by the turnover of the activities that are subject to LAT.

The LAT is paid to the local authority at the rate of:

• 0.2% of the total turnover of the entity, with a minimum calculated on the basis of the number of square metres of construction used by the entity.


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• 0.1% of the turnover deriving from exportation as defined by the legislation in force.

LAT is payable monthly before the 28th day of each month.

Hotels taxThe hotels tax is due by entities that work with tourists; provide accommodation, food, and beverages; or organise leisure activities for clients. The tax is calculated at 2% of the gross turnover generated from the tourism and relating activities.


Tourism Sector Development Fund (FDCST) taxThe FDCST tax is a tax that is paid by entities operating in the tourism sector. The tax is calculated at 1% of the turnover, excluding VAT, generated from tourism and relating activities.

Branch income

The income attributable to a PE corresponds to:

• the revenues generated directly by the PE further to the exercise of its activity• the revenues corresponding to works carried out by it, even if invoiced by the head

office, and• the revenues that would have been realised by an independent company carrying

out the same business, in case the activity of the PE is provided for free.

The following charges are deductible for the purpose of the determination of the taxable results of a PE:

• All the charges incurred directly by this PE and necessary for its proper functioning. These charges have to be supported by proper documentation.

• Direct charges incurred by the head office exclusively for the PE and supported by proper documentation.

• A proportion of the indirect charges (real central administration costs) incurred by the head office. The proportion admitted for deduction is most often calculated on the basis of the turnover of the Tunisian branch against the global turnover of the head office. The deduction is limited to 10% of the Tunisian turnover in case the head office is resident of a state that did not conclude a DTT with Tunisia.


Inventory valuationInventory is valued at cost.

Capital gainsAccording to the provisions of article 11 of the Income and Corporate Tax Code, “the net income of a company is determined as the result of all the operations undertaken by the company, including mainly the transfer of assets…” Consequently, capital gains, if any, arising from the transfer of assets will be considered as taxable income and will be subject to corporate tax.


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Capital gains are calculated as the difference between the sale price, which is supposed to be equal to the fair market value, and the net book value.

In the particular case of goodwill (fonds de commerce) generated internally, capital gains will be equal to the total sale price, as goodwill, other than derived from acquisitions, has no value on the books of the company.

All tangible and intangible transaction assets have to be valued at their fair market value.

The goodwill (fonds de commerce) generated internally, even if not booked as an asset of the company, also has to be valued at fair market value.

Particular case of capital gains resulting from mergersCapital gains arising from the transfer of assets, other than inventories, on the occasion of a merger operation are deductible from the taxable income of the merged company and are to be added back to the taxable income of the absorbing company at up to 50% of their amount, spread out over five years.

Dividend incomeDividends distributed by Tunisian-resident companies to non-resident, non-establishment companies, to non-resident individuals, and to resident individuals are subject to corporate tax paid through a discharging WHT at the rate of 5% of its total amount.

Dividends distributed by non-resident companies are subject to tax in Tunisia, unless otherwise provided for by the DTTs concluded by Tunisia.

Interest incomeInterest income arising from Tunisia or outside is part of the taxable results of the company, unless expressly exempt by the law (e.g. interests on deposits in foreign currencies).

Royalty incomeRoyalty income, except that derived from exports, is part of the taxable results of the company.

Foreign incomeForeign income derived from services that are realised outside Tunisia are part of the taxable income (see the Tax credits and incentives section).

Deductions

DepreciationDepreciation expenses of fixed assets that are owned by the company and within the limit of the depreciation expense calculated according to the straight-line method are deductible for the purpose of determination of taxable income at a maximum depreciation rate fixed by decree.

Buildings may be depreciated according to the accounting legislation. However, the tax deductible depreciation expense must not exceed the depreciation expense calculated


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at a maximum depreciation rate of 5%, according to the straight-line method. Extra depreciation expenses are to be added back to the taxable base subject to corporate tax.

Equipment and machinery may be depreciated according to the accounting legislation. However, the tax deductible depreciation expense must not exceed the depreciation expense calculated at a maximum depreciation rate of 15%, according to the straight-line method. Extra depreciation expenses are to be added back to the taxable base subject to corporate tax.

The equipment and machinery depreciation rate may be increased by 50% if the equipment is used at least 16 hours a day, or doubled if used 24 hours a day, but the tax deductible depreciation expense must not exceed the depreciation expense calculated at a maximum depreciation rate of 15%, according to the straight-line method, multiplied by 1.5 or by 2, depending on whether the equipment will be used 16 or 24 hours a day.

Depreciation expenses of assets exploited under leasing contracts are also deductible for the purpose of determination of taxable income. In fact, even if assets exploited under leasing contracts are not owned by the company, they are booked as assets in the balance sheet and depreciated accordingly over a minimum period fixed by decree, as follows:

Asset exploited under leasing contracts Minimum period (years)Constructions 7Machinery and equipment 4Transportation equipment 3

GoodwillGoodwill (fonds de commerce) amortisation expenses are not tax deductible for the purpose of the determination of taxable income.

Start-up expensesThe maximum amortisation expense allowed for deduction is equal to 100% of the start-up expenses.

Interest expensesInterest expenses (commissions, bank charges, interest loans, etc.) relating to loans contracted by the company and necessary for its proper functioning are tax deductible.

Interest expenses on shareholders current account are tax deductible within the limit of the maximum rate of 8%, provided that the capital is fully paid and the amount to be remunerated shall not exceed 50% of the capital; the rate of 8% is not applied to banks.

Bad debtProvisions for bad debts are tax deductible within the limit of 50% of the taxable result (after deduction of non-taxable revenues and add-back of non-deductible charges).

The deduction of bad debts is subject to the presentation of a detailed statement of the concerned creditors while filing the annual corporate tax return, as well as court cases against the creditors in order to claim payment.


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Provisions for bad debts that are initially constituted tax-free and become groundless during an exercise (e.g. by the covering of the debt totally or partially) are taxable.

Charitable contributionsCharitable contributions are either deductible:

• totally, in cases where they are granted notably to the state, local authorities and state-owned companies, and to organisation dedicated to disability promotion, or

• within 0.2% of the revenue, in other cases.

The deduction of charitable contributions is subject to the presentation of a detailed statement of the beneficiaries while filing the annual corporate tax return of the year during which these charitable contributions were granted.

Fines and penaltiesTransactions, fines, and any other penalties for violating legal provisions are not tax deductible. However, contractual penalties (for late payment for example) remain tax deductible.

TaxesAll taxes due by the company are considered as tax-deductible charges, except corporate tax.

Note that when the tax due by non-resident, non-PEs on royalties is borne by a Tunisian-established company (the debtor), then the correspondent charge is not tax deductible.

Net operating lossesUnder the Tunisian tax legislation, tax losses are divided into two categories: operating losses and deferred depreciation.

Operating losses are to be carried forward for five years, starting from the year following the one during which they were booked.

Deferred depreciation is to be carried forward indefinitely, starting from the year following the one during which they were booked.

With regard to the Tunisian tax legislation, operating losses cannot be carried back.

Payments to foreign affiliatesSee Transfer pricing in the Group taxation section.

Group taxation

Transfer pricingAccording to the Tunisian tax legislation, where there is evidence for the tax authorities of the existence of commercial or financial business transactions between a company and other dependent companies, which, for the determination of their value, are based on rules that differ from those governing relations between independent companies and which result in the reduction of taxable benefits, the tax department is allowed to add back to the taxable result of the invoicing company the differential between


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the benefits that would have been realised if the practiced prices were in line with the arm’s-length principle and those actually accounted for by the company.

The burden of proof is on the tax department.

Thin capitalisationProjects may be financed by shareholders’ equity, shareholders’ loans, or external debts.

Interest due on shareholders’ loans is tax deductible within the limit of an interest rate of 8%, provided that the following conditions are met:

• The capital is fully paid-up.• The amount of the sums put at the disposal of the company must not exceed 50% of

the capital.

In case shareholders’ loans exceed 50% of the share capital, then interests due in the part exceeding 50% are not tax deductible.

Controlled foreign companies (CFCs)There is no provision in Tunisia for CFCs.


Two new laws have been promulgated in order to promote investment in Tunisia, the Investment Law and the Tax Incentives Law.

Investment Law n° 2016-71 of 30 September 2016

Objectives of the new Investment LawThe purpose of the new Investment Law is to promote investment and to encourage the creation of enterprises, notably through:

• Increasing the added value, competitiveness, and export capacity of the national economy, and technological development at the regional and international levels.

• Job creation and promotion of human resources competence.• Achieving an integrated and balanced regional development.• Achieving sustainable development.

Main features of the Investment LawThe Investment Law defines the legal regime for investment promoted by persons, resident or non-resident, in all sectors of economic activities, fixed by decree.

Under the new Investment Law, investors benefit from the below incentives:

• Right to acquire, lease, or operate non-agricultural immovable property.• Possibility of recruiting executives of foreign nationality for up to 30% of the total

number of managers; this rate is reduced to 10% as from the fourth year. In all cases, the company can recruit four executives of foreign nationality (even if the limit of 30% or 10% is less than four).

• Free transfer of the profit, dividends, and capital abroad in foreign currency, in accordance with the applicable foreign exchange legislation. Indeed, the Investment Law specifies that the investor is free to transfer one’s capital and profits abroad in foreign currency (in compliance with the applicable foreign exchange legislation). In


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case the transfer requires authorisation from the Tunisian Central Bank, any refusal must be in writing. The failure to reply within the time limit to be set by decree is considered as an acceptance (except for activities excepted to be defined by decree).

• Investment subsidies for direct investment operations, as follows: • Subsidies for the increase in value added and competitiveness.• Subsidies for the development of employability capacity.• Subsidies for regional development.• Subsidies for sustainable development.

Conditions and modalities to benefit from subsidies are defined by decree.• Possibility to benefit from arbitration in case of dispute with the Tunisian State.

The Investment Law provides rules for settlement of disputes between the Tunisian State and foreign investors. These shall be settled by conciliation and otherwise the dispute may be submitted to arbitration under a specific agreement between the two parties. In case the dispute is not settled through conciliation and in the absence of an arbitration agreement, the dispute falls within the jurisdiction of Tunisian courts.

Also, as per the Investment Law, foreign investors have the same rights and obligations provided for by the Investment Law as Tunisian investors, in comparable situations.

The Investment Law provided for the need to comply with response deadlines for each authorisation requested by the investor and the obligation to justify each refusal in writing. Failure to reply within the time limit constitutes acceptance under article 4 of the Law (except for activities excepted to be defined by decree).

Investors’ properties and intellectual property (IP) rights are protected in accordance with the legislation in force. Investor’s property may not be expropriated except for public interest reasons, without discrimination between Tunisian and Foreign investors, subject to fair and equitable compensation.

Tax Incentives Law n° 2017-8 of 14 February 2017The major tax incentives provided for by the new law are mainly relating to:

• Export operations.• Investments in regional development zones.• Agricultural development.• Support and depollution activities.• Newly created companies.

Wholly exporting activitiesThe following are considered as wholly exporting companies:

• Companies with products manufactured in Tunisia, totally destined to be sold outside Tunisia.

• Companies providing services totally used/exploited outside Tunisia.• Companies operating in agriculture and fisheries, manufacturing, and craft

industries that sell all their products to wholly exporting companies, as well as companies established in business parks, provided that such products and goods constitute components of the final product to be exported, and to international trade wholly exporting enterprises.

• Companies that carry out all their services for the benefit of wholly exporting companies, companies established in the economic activity parks, and international trade totally exporting companies, in the subcontracting operations, within the


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same sector or within the framework of services directly linked to production (set by decree).

Note that wholly exporting companies may commercialise locally, during a given year, up to 30% of the turnover of the previous year without losing the status of a wholly exporting company.

Tax incentives at the exploitation phaseProfits derived from the exportation activity are subject to corporate tax at the rate of 10%, and all other revenues will be subject to corporate tax at the rate of 25%.

The rate of 10% is also applicable to the below auxiliary and exceptional profits related to operations:

• Investment allowances granted under the legislation of investment incentives, allowances of upgrading granted under an approved upgrade program, and allowances granted to enterprises in the framework of the National Employment Fund.

• Capital gains derived from the sale outside Tunisia or to other wholly exporting companies of tangible assets used to carry out the exportation activity, excluding constructions, lands, and goodwill (fonds de commerce).

• Realised exchange profits in connection with the exportation activity.• Remission of debt for the benefit of the wholly exporting companies.

The wholly exporting company whose total deduction period (ten years) has not expired on 31 March 2017 will continue to benefit from the said deduction until the expiry of that period.

Tax incentives at the creation and capital increase phasesProfits/revenues invested in the subscription to initial capital or to capital increases of totally exporting companies are deductible from taxable profits/revenues at up to 100% of the taxable result, subject to the minimum tax of 15% of the taxable result before the said deduction for companies subject to CIT at the rate of 25% (20% for companies subject to CIT at the rate of 35%) and 45% for individuals. However, the deduction is subject to the conditions listed below:

• The deposit of an investment declaration to the concerned authorities.• The annual tax return must be accompanied by a certificate issued by the competent

authorities certifying the effective start of activity.• The status of the company must be compliant with regard to the National Social

Security Funds.• The implementation of an investment financing scheme investment with a minimum

rate of equity capital.

Other incentivesWholly exporting companies also benefit from:

• VAT exemption on the import operations and local acquisitions of goods, products, equipment, and services necessary for its operations.

• Exemption from other indirect taxes, including customs duties.• Exemption from professional training tax, registration fees and stamp duties, and

social logging tax.


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Also, foreign employees recruited by totally exporting companies may benefit from the payment of personal income tax (PIT) at the reduced rate of 20% of gross revenues.

Regional development zones activitiesThe new tax incentives law provides that investments in certain activities (except for some sectors listed by decree) carried out by entities established in regional development zones (fixed by decree) benefit from a number of tax incentives, detailed as follows:

Tax incentives at the exploitation phase

Income taxRevenues derived from direct investments in regional development zones are totally deductible from the taxable income until the expiry of the period of five years (Group 1 zones listed by decree) or ten years (Group 2 zones listed by decree).

After the expiry of the exemption period, 2/3 of revenues derived from direct investment in development zones are deductible from the taxable income.

CITProfits derived from direct investments in regional development zones are totally deductible from the taxable income until the expiry of the period of five years (Group 1 zones listed by decree) or ten years (Group 2 zones listed by decree).

After the expiry of the exemption period, benefits derived from direct investment in development zones will be subject to CIT at the rate of 10%.

Tax of exceptional or auxiliary revenues/profitsEnterprises that invested in development zones may also benefit from the deduction and the taxation at the reduced rate (after the expiry of total deduction period) for other profits in connection, with the same limits and conditions. The profits in question are detailed as follows:

• Investment allowances granted under the legislation of investment incentives, allowances of upgrading granted under an approved upgrade program, and the allowances granted to enterprises in the framework of the National Employment Fund.

• The capital gain derived from the sale of fixed assets allocated to the main activity of enterprises, with the exception of buildings, unbuilt buildings, and goodwill.

• Realised exchange profits in connection with the principal activity.• Remission of debt for the benefit of the companies.

Tax incentives at the creation and capital increase phasesProfits/revenues invested in the subscription to initial capital or to capital increases of companies located in development areas are deductible from taxable profits/revenues at up to 100% of the taxable result. However, the deduction is subject to the conditions listed below:



Security Funds.


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• The implementation of an investment financing scheme investment with a minimum rate of equity capital.

Other incentivesEnterprises that invested in development zones may also benefit from the exemption from social logging tax and vocational training tax.

Agricultural activitiesThe new Tax Incentives Law provides that investments in the agricultural sector benefit from a number of tax incentives, detailed as follows:


Income taxRevenues derived from direct investments in the agricultural sector are totally deductible from the taxable income during a period of ten years.

After the expiry of the exemption period, 2/3 of revenues derived from direct investment in the agricultural sector are deductible from the taxable income.

CITProfits derived from direct investments in the agricultural sector are totally deductible from the taxable income during a period of ten years.

After the expiry of the ten-year exemption period, benefits derived from direct investment in the agricultural sector will be subject to CIT at the rate of 10%.

Taxation of exceptional or auxiliary revenues/profitsEnterprises that invest in the agricultural industry may also benefit from the deduction and the taxation at the reduced rate (after the expiry of total deduction period) for other profits in connection, with the same limits and conditions. The profits in question are detailed as follows:

• Investment allowances granted under the legislation of investment incentives, allowances of upgrading granted under an approved upgrade program, and the allowances granted to enterprises in the framework of the National Employment Fund.

• The capital gain derived from the sale of fixed assets allocated to the main activity of enterprises, with the exception of buildings, unbuilt buildings, and goodwill.

• Realised exchange profits in connection with the principal activity.• Remission of debt for the benefit of the companies.

Conditions for the benefit of the tax incentives:






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Tax incentives at the creation and capital increase phasesProfits/revenues invested in the subscription to initial capital or to capital increases of agricultural companies are deductible from taxable profits/revenues at up to 100% of the taxable result. However, the deduction is subject to the conditions for the benefit of the tax incentives listed above.

Other incentives The direct investments in Agricultural activities give entitlement to the following tax incentives (conditions and equipment listed by decree):

• Exemption from customs duties and taxes with a similar effect for imported equipment necessary for the investment.

• Suspension of VAT and consumption duty for imported equipment and equipment acquired locally that are necessary for the investment.

Also, registration duties paid on the transfer of agricultural land used for direct investment in the agricultural industry could be refunded on request (to be submitted within a three-year period).

Support and depollution activitiesThe supporting investments activities are defined as being the following:

• Child and elder care institutions.• Education, teaching, scientific research, and professional training institutions.• Cultural production and cultural industry establishments.• Youth entertainment and leisure facilities.• Health and hospital facilities.• Private accommodation projects for students.

The list of activities is set by decree.

The depollution activities are defined as being the collection, transformation, recovery, recycling, or treatment of waste and residues.


Income tax2/3 of the income derived from direct investment in support and depollution activities are deductible from the taxable income (subject to the below conditions).

CITProfits derived from direct investments in support and depollution activities are subject to CIT at the rate of 10% (subject to the below conditions).







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Other incentives The direct investments in support and depollution activities give entitlement to the following tax incentives (conditions and equipment listed by decree):

• Exemption from customs duties and taxes with a similar effect for imported equipment necessary for the investment.

• Suspension of VAT and consumption duty for imported equipment and equipment acquired locally that are necessary for the investment.

Newly created companies

Tax incentives at the exploitation phaseCompanies/enterprises newly created (except for those incorporated in the on-site consumption, trade, financial, energy other than renewable energy, and mining industries, telecommunication operators, and real estate developers) may benefit from the deduction of a portion of their taxable profits/revenues up the fourth year of activity as follows (subject to the below conditions):

• 100% for the first year.• 75% for the 2nd year.• 50% for the 3rd year.• 25% for the 4th year.






Tax incentives at the extension Companies/enterprises newly created (except for those incorporated in the on-site consumption, trade, financial, energy other than renewable energy, and mining industries, telecommunication operators, and real estate developers) may benefit from the deduction from their taxable income of 30% as depreciation of machinery and equipment (excluding cars other than those constituting the main object of the company) acquired or manufactured in the context of extension operations for the first year from the acquisition, manufacturing, or use starting date.

Foreign tax creditIn the absence of DTTs, corporate tax (or any WHT in connection with) paid outside Tunisia is not deductible from the tax due in Tunisia.

However, in the presence of DTTs, in cases where profits derived from outside Tunisia were subject to corporate tax in Tunisia, the foreign tax, if any, is deductible, but only up to the corresponding Tunisian tax on these profits.


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Withholding taxes

The payments of certain remunerations are subject to corporate WHT in Tunisia.

The WHT is an advance payment of corporate tax and is thus deductible from the corporate tax due by the invoicing entity. To this end, the paying entity shall withhold the tax at the appropriate rate. It shall then issue a WHT certificate to the invoicing company to enable the latter to use the certificate as proof of the payment at the moment of filing its corporate tax return. The paying entity subsequently pays the withheld amount to the tax authorities.

The withheld tax is to be declared and repaid by the paying entity each month before the 28th day of the following month.

The rates of the WHT differ according to the nature of the goods/services and the rates applicable within the framework of the DTTs.

Applicable WHT rates in Tunisia are as follows:

• 15% of the gross amount of the invoices related to fees, commissions, brokerage fees, rentals, payment of non-commercial activities (non-commercial activities include especially independent scientific, literary, artistic, educational, or teaching activities, such as independent activities of physicians, dentists, lawyers, consultants, architects, engineers, accountants, etc.).

This rate is reduced to 5% for fees (including those paid for non-commercial activities) and hotel rentals when these amounts are paid to entities subject to corporate tax and individuals who keep proper accounts in accordance with the Tunisian accounting principles.

This rate is reduced to 2.5% for fees, commissions, rentals, and non-commercial remunerations deriving from exportation, in accordance with the legislation in force.

• 15% on performance bonus paid to distributors of goods.• 20% on interest and director’s attendance allowance. This does not include interest

on deposits and bonds in foreign currency or convertible dinars.• 5% on bank loans extended by non-Tunisian resident banks.• 2.5% on the sales price indicated in a real estate sale, in case the seller is an

individual.• 1.5% on payments exceeding TND 1,000 (including VAT) made for the acquisition

of goods and services necessary to the activity and that are not subject to a specific WHT rate.

This rate is reduced to 0.5% in case the remunerations are derived from exportation, in accordance with the legislation in force, or payment is made to companies subject to corporate tax at the rate of 10%.

• 15% on other payments made to non-Tunisian tax resident persons.• Dividends distributed by Tunisian-resident companies to non-resident, non-

establishment companies, to non-resident individuals, and to resident individuals are subject to corporate tax paid through a discharging WHT at the rate of 5% of its total amount.

• 25% on payments made to persons resident in tax havens.• 25% on lottery and gambling gain.


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DTT ratesNote that the following interest WHT rates are applicable to interest payable to non-resident, non-PE companies and financial institutions according to DTTs concluded by Tunisia.

The DTT rate is applicable in case it is lower than the domestic law, provided that the beneficiary of the payment provides the corresponding tax residency certificate. In case of failure, the domestic law will be applied.

Recipient

WHT (%)

Dividends (62, 67)Interest

RoyaltiesBanks (45) Other companiesAustria 10/20 (63) 10 10 10/15 (1)Belgium 5/15 (64) 5/10 (46) 10 11 (2)Cameroon 12 15 15 15 (3)Canada 15 15 15 15 (4)China 8 0/10 (47) 10 5/10 (5)Czech Republic 10/15 (63) 12 12 5/15 (6)Denmark 15 12 12 15 (7)Egypt 10 10 10 15 (8)Ethiopia 5 0/11 (48) 11 5 (9)France 5 12 12 5/15 (10)Germany 10/15 (63) 0/10 (49) 10 10/15 (11)Greece 10 15 15 10 (12)Hungary 10/12 (63) 12 12 12 (13)Indonesia 12 12 12 15 (14)Iran 10 0/10 (50) 10 8 (15)Italy 15 0/12 (51) 12 5/12 (16)Jordan 5 5 20 (17)Kuwait 10 0/2.5 (52) 10 5 (18)Lebanon 5 0/5 (53) 0/5 (54) 5 (19)Luxemburg 10 7.5/10 (55) 10 12 (20)Mali 0/5 (63) 5 5 (21)Malta 10 12 12 12 (22)Mauritius Islands 0 2.5 2.5 2.5 (23)Netherlands 0/20 (64) 7.5/10 (56) 7.5/10 (56) 7.5/11 (24)Norway 20 12 12 5/15 (25)Pakistan 10 13 13 10 (26)Poland 5/10 (63) 12 12 12 (27)Portugal 15 15 15 10 (28)Qatar 0 5 20 5 (29)Romania 12 10 10 12 (22)Saudi Arabia 5 2.5 5 5 (61)Senegal 5 5 20 (30)South Africa 10 5 12 10/12 (31)South Korea 15 0/12 (57) 12 15 (32)Spain 5/15 (65) 5/10 (58) 5/10 (58) 10 (33)Sudan 0/5 (63) 10 10 5 (34)Sultanate of Oman 0 10 10 5 (35)Sweden 15/20 (63) 12 12 5/15 (36)Switzerland 10 10 10 10 (37)


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Recipient

WHT (%)

Dividends (62, 67)Interest

RoyaltiesBanks (45) Other companiesSyria 0 10 10 15 (38)Turkey 12/15 (63) 10 10 10 (39)United Arab Emirates 0 5 (59) 10 7.5 (40)United Kingdom 12/20 (63) 10 12 15 (41)United Maghreb Arab 5 5 20 (42)United States of America 14/20 (66) 0/15 (60) 15 10/15 (43)Yemen 0 10 10 7.5 (44)

Notes

1. 10% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work. 15% of the gross amount of the royalties for cinematographic films and TV films, patents, trademarks, designs or models, plans, secret formulae, or processes; technical and economical studies; information concerning industrial, agricultural, commercial, or scientific experience; and the use of or the right to use industrial, commercial, or scientific equipment.

2. 11% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films and films for TV broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information concerning industrial, commercial, or scientific experience; the use of, or the right to use, industrial, commercial, scientific equipment, or port facilities; and economical and technical studies, and technical assistance realised in the state of source.

3. 15% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films, patents, trademarks, designs or models, plans, secret formulae, or processes; information concerning industrial, commercial, or scientific experience; the use of, or the right to use, industrial, commercial, or scientific equipment; and technical assistance and studies in all fields.

4. 20% of the gross amount of the royalties for the use of, or the right to use, licences, trademarks, cinematographic films, and films and discs for radio or television broadcasting and the use of, or the right to use, industrial, commercial, scientific equipment, or port facilities; however, since the 20% treaty rate is higher than the 15% common law rate, the latter will be applied. 15% of the gross amount of the royalties for all the other cases, mainly technical and economical studies; the use of, or the right to use copyrights, patents, trademarks, designs or models, plans, secret formulae, or processes; and information concerning industrial, commercial, or scientific experience. However, royalties paid for the use of, or the right to use, copyrights of literary, dramatic, musical, or artistic work, except royalties in respect of cinematographic films and films and discs for TV broadcasting, are taxable in the state of residency and thus cannot be subject to tax nor to any WHT in connection with the state in which they arise.

5. 10% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes, and information in respect of industrial, commercial, or scientific experience. 5% of the gross amount of the royalties for technical and economical studies and technical assistance.

6. 5% of the amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic and films for TV and radio broadcasting. 15% of the amount of the royalties for the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of or the right to use industrial, commercial, or scientific equipment; and technical and economical studies and technical assistance rendered in the state in which they arise.

7. 15% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of or the right to use industrial, commercial, or scientific equipment; and technical and economical studies.

8. 15% of the gross amount of royalties for the right to publish any literary, artistic or scientific work, patents, trademarks, designs or models, plans, secret formulae or processes; information in respect of industrial, commercial or scientific experience; the use of or the right to use industrial, commercial or scientific equipment; and cartoons, films, and videos for TV broadcasting.

9. 5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment.


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10. 5% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work. 15% of the gross amount of the royalties for the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and economical and technical studies. 20% of the gross amount of the royalties for the use of, or the right to use, agricultural, industrial, commercial, scientific equipment, or port facilities and licences, trademarks, cinematographic films, and films for TV broadcasting. However, payments made to public entities for the use of cinematographic films or the broadcasting on radio and TV are exempt from WHT; however, since the 20% treaty rate is higher than the 15% common law rate, the latter will be applied.

11. 10% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work; information concerning agricultural, industrial, commercial, or scientific experience; and technical and economical studies. 15% of the gross amount of the royalties for patents, trademarks, designs or models, plans, secret formulae, or processes, and cinematographic films or films for television.

12. 10% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information concerning industrial, commercial, or scientific experience; the use of, or the right to use, industrial, agricultural, commercial, scientific equipment, or port facilities, except remunerations for chartering of vessels and aircraft; and technical and economical studies.

13. Royalties may be subject to tax in the contracting state in which they arise in cases where the legislation of that state allows such taxation, at a maximum rate of 12%.

14. 15% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of, or the right to use, industrial, commercial, or scientific equipment; and technical services, such as technical and economical studies and technical assistance.

15. 8% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, agricultural, industrial, commercial, scientific equipment, or port facilities, except remunerations for the chartering of vessels and aircraft used for international transport.

16. 5% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work. 12% of the gross amount of the royalties for the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and economical and technical studies. 16% of the gross amount of the royalties for the use of, or the right to use industrial, commercial, or scientific equipment, and licences, trademarks, cinematographic films, and films for TV broadcasting; however, since the 16% treaty rate is higher than the 15% common law rate, the latter will be applied.

17. Royalties may be subject to tax in the contracting state in which they arise in case the legislation of that state allows such taxation and according to the legislation of that state for the use of, or the right to use, any copyright of literary, artistic, or scientific work, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment.

18. 5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes, and information in respect of industrial, commercial, or scientific experience.

19. 5% of the gross amount of royalties for the use of, or the right to publish, any literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, a transmission by satellite or optical fibre transmission or similar means of transmission, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment.

20. 12% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience, except remuneration for vessels and aircraft chartering in respect of international transport; the use of, or the right to use, industrial, agricultural, commercial, or scientific equipment; and technical services, such as technical and economical studies and technical assistance, carried out in the state of source.

21. Royalties may be subject to tax in the contracting state in which they arise in cases where the legislation of that state allows such taxation and according to its legislation for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films recording for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment.

22. 12% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of, or the right to use,


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industrial, agricultural, commercial, or scientific equipment; and technical and economical studies and technical assistance.

23. 2.5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, agricultural, commercial, or scientific equipment, except remunerations for the chartering of vessels and aircraft used for international transport.

24. Royalties may be subject to tax in the contracting state in which they arise in case the legislation of that state allows such taxation; but if the recipient is the beneficial owner of the royalties, the tax so charged shall not exceed 11% of their amount. However, this rate is reduced to 7.5% in case royalties received by a resident of Tunisia are not subject to WHT in the Netherlands and as long as the Netherlands does not proceed to the modification of its tax legislation. Remunerations paid for the following are considered royalties: the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of, or the right to use, industrial, commercial, or scientific equipment, except remunerations paid for the exploitation of vessels and aircraft in respect of international transport; and technical and economical studies and technical assistance rendered in the state from which royalties are paid.

25. 5% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, except cinematographic films and films for TV broadcasting. 15% of the gross amount of the royalties for the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and economical and technical studies. 20% of the gross amount of the royalties for the use of, or the right to use, agricultural, industrial, commercial, scientific equipment, or port facilities, and the use of, or the right to use, trademarks and cinematographic films and films for TV broadcasting; however, since the 20% treaty rate is higher than the 15% common law rate, the latter will be applied.

26. 10% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films, patents, trademarks, designs or models, plans, secret formulae, or processes; the use of, or the right to use, industrial, agricultural, commercial, scientific equipment, or port facilities, except remuneration for vessels and aircraft chartering in respect of international transport; and technical and economical studies and technical assistance.

27. 12% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of, or the right to use, industrial, agricultural, commercial, scientific equipment, or port facilities; and technical and economical studies and technical assistance.

28. 10% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of, or the right to use, industrial, commercial, or scientific equipment; and technical and economical studies and technical assistance in respect of the use of, or the right to use, the equipments, rights, and information mentioned above.

29. 5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of or the right to use industrial, commercial, or scientific equipment.

30. Royalties are subject to tax in the state of residency of the beneficiary. However, the non-exclusive taxation right attributable to the state of residency does not prohibit the taxation of such royalties in the state in which they arise in cases where the legislation of that state allows such taxation and according to its legislation. Remunerations paid for the following are considered royalties and thus are subject to tax in the state in which they arise: the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment that is not considered as an asset in the meaning of Article 6 of the present treaty.

31. 10% of the gross amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes, and information in respect of industrial, commercial, or scientific experience. 12% of the gross amount of the royalties for technical services, such as technical and economical studies and technical assistance.

32. 15% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; the use of, or the right to use, industrial, agricultural, commercial, or scientific equipment; and economical and technical studies and technical assistance.

33. 10% of the gross amount of royalties for copyrights, patents, trademarks, designs or models, plans, secret formulae, or processes; studies and information in respect of industrial, commercial, or


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scientific experience; the use of, or the right to use, industrial, commercial, or scientific equipment; and cinematographic films and video tapes for TV broadcasting.

34. 5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of or the right to use industrial, agricultural, commercial, or scientific equipment, except chartering of ships and aircraft used for the international transport.

35. 5% of the gross amount of royalties for remunerations paid for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, software, designs or models, plans, secret formulae, or processes.

36. 5% of the amount of the royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, excluding cinematographic and films for TV and radio broadcasting. 15% of the amount of the royalties for the use of, or the right to use, cinematographic films, films for TV and radio broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment, and technical and economical studies.

37. 10% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience, and technical and economical studies and technical assistance related to these information; and the use of, or the right to use, industrial, commercial, or scientific equipment.

38. 18% of the gross amount of royalties for the use of, or the right to use patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment; however, since the 18% treaty rate is higher than the 15% common law rate, the latter will be applied.

39. 10% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use, industrial, commercial, or scientific equipment.

40. 7.5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use, of or the right to use, industrial, commercial, or scientific equipment.

41. 15% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of, or the right to use, industrial, agricultural, commercial, or scientific equipment; and technical and economical studies.

42. Royalties are only taxable in the contracting state in which they arise in cases where the legislation of that state allows such taxation and according to its legislation for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films for TV broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; the use of, or the right to use, industrial, commercial, scientific equipment or port facilities; and economical and technical studies and economical assistance.

43. 15% of the gross amount of the royalties for copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and profits from any ownership, depending from the productivity, the use, or the alienation of that ownership. 10% of the gross amount of the royalties for the use of, or the right to use, industrial, commercial, or scientific equipment other than vessels and aircraft used for international transport, and technical studies paid from public funds or political subdivisions or local authorities or technical assistance for the use of the ownership of the rights above mentioned, in case the technical assistance is realised in the state of source.

44. 7.5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematographic films and films, tapes, or discs for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulae, or processes, and the use of, or the right to use, industrial, commercial, or scientific equipment and port facilities, except remunerations paid for vessels and aircraft used in international transport.

45. These rates are applicable, in certain cases, to the loans extended by the Central Bank.46. 5% for loans extended by banks and not represented by bonds or other debt securities.47. 0% for loans granted by financial institutions, the capital of which is held up to 100% by the Chinese

state.48. 0% for loans granted by financial institutions, the capital of which is held at least up to 50% by the

Ethiopian state, its political subdivisions, or local authorities.49. 0% for loans granted by the Deutsche Bundesbank, Kreditanstalt für Wiederaufbau, and the Deutsche

Gesellschaft für wirtschaftliche zusammenarbeite Gmbh. (Entwicklumgsgesells).


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50. 0% for loans granted by financial institutions, the capital of which is held up to 100% by the state of Iran.

51. 0% for loans granted by financial institutions, the capital of which is totally held by the Italian state or its local authorities.

52. 0% for loans granted by financial institutions, the capital of which is held up to 100% by the state of Kuwait.

53. 0% for loans granted by financial institutions, the capital of which is totally held by the state of Lebanon, its political subdivisions, or local authorities.

54. 0% for loans granted by companies, the capital of which is totally held by the state of Lebanon, its political subdivisions, or local authorities.

55. 7.5% for loans guaranteed or granted by financial institutions and the reimbursement period of which exceeds five years.

56. 7.5% as long as the tax legislation of the Netherlands provides that interest paid by a company resident in the Netherlands to a company resident in Tunisia is exempt from any WHT.

57. 0% for loans, the reimbursement period of which exceeds seven years.58. 5% for loans, the reimbursement period of which exceeds seven years, and 10% in the other cases.59. 5% for bank loans since the Tunisian domestic tax legislation provides that interest on bank loans

extended by non-established banks is subject to a 5% WHT rate.60. 0% for loans granted by financial institutions, provided that the reimbursement period exceeds seven

years.61. 5% of the gross amount of royalties for the use of, or the right to use, any copyright of literary, artistic,

or scientific work, including cinematography and films for TV and radio broadcasting; the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulae, or processes; information in respect of industrial, commercial, or scientific experience; and the use of, or the right to use industrial, commercial, or scientific equipment.

62. According to the DTTs concluded by Tunisia, dividends are subject to the listed WHT tax rates, knowing that the rate provide by the domestic law is fixed at 5%.

63. The lower rate applies in cases where the beneficiary has equity participation of 25%.64. The lower rate applies in cases where the beneficiary has equity participation of 10%.65. The lower rate applies in cases where the beneficiary has equity participation of 50%.66. The lower rate applies in cases where the beneficiary has equity participation of 25%, except for

investment companies and real estate investment companies.67. Certain DTTs foresee that in case companies resident of a contracting state have a PE in the other

contracting state (state of source), the latter may levy WHT on profits made by the PE as a taxation on dividend.

Tax administration

Taxable periodUnder Tunisian law, both the accounting year and tax year follow the calendar year. However, derogation is possible if prior authorisation is obtained from the Ministry of Finance.

Tax returnsTunisian-established companies have the obligation to file monthly tax returns, an annual corporate tax return, and an annual Employer’s Declaration.

Monthly tax returns include WHTs, VAT, LAT, social logging tax, and professional training tax, and must be filed each month before the 28th day of the following month. Filing and payment take place simultaneously.

The annual tax return is the corporate tax return, which must be filed before 25 March of the following year. The deadline for filing the corporate tax return is moved to 25 June for public liability companies and private liability companies subject to statutory audit. Filing and payment take place simultaneously.

The Employer’s Declaration has to be filed each year before 30 April of the following year. This declaration must list all fees and salaries paid or incurred, even if not yet


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paid, to service suppliers and employees during the concerned year. No payment is due in connection with this filing, but fees not listed on this declaration are not recognised as deductible costs.

Payment of taxCorporate tax is paid through:

• WHTs applied on certain payments and operated by the debtor on behalf of the taxpaying entity.

• Beginning from the second year of activity, three provisional instalments, each calculated at 30% of the total corporate tax due for the previous year. The instalments fall due on 28 June, 28 September, and 28 December.

• An annual tax return.

Both WHTs and provisional payments of income tax are creditable against the annual/final tax due.

Filing and payment take place simultaneously.

The most common process is the filing in person at the tax office. In this case, payment is made in cash or by check.

However, companies with turnover exceeding TND 1 million are constrained to file their tax returns electronically. Electronic filing remains optional for other companies. In this case, payment is made through bank transfer.

Tax audit processTax controllers may proceed either with a preliminary tax audit or an in-depth tax audit.

Preliminary tax auditIn case of a preliminary tax audit, the taxpayer under control is not notified prior to starting the audit. However, the tax authority has the obligation to send an information request concerning the tax findings. The taxpayer has to reply within 20 days.

The tax audit is conducted in the offices of the tax administration and deals with the documents made available to them (tax returns, registered contracts, etc.). However, preliminary tax audits can never deal with the taxpayer’s accounts.

The results of the tax control are notified in writing to the taxpayer within a tax audit report, whereby the outcome of the audit activity must be detailed and the findings, if any, must be illustrated and motivated. The tax report is to be notified to the taxpayer within 90 days from the expiry date to reply to the information request (see above).

Indeed, the taxpayer has the possibility to answer to the tax audit report within 45 days starting from the day following the date of receipt of the report. Failing that, the taxpayer will receive a tax assessment notice that brings forth requests for payment of taxes and penalties to the taxpayer. In cases where the taxpayer answers to the notification of the results of the tax audit and brings additional explanations, clarifications, and documents to the tax auditors, they will be constrained to examine the evidence provided by the taxpayer and answer to the taxpayer’s opposition within six months from the day following the notification date.


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Once the taxpayer receives the answer of the tax authorities to the taxpayer’s opposition, the taxpayer will have the possibility to file a second opposition within 15 days from the day after the notification day in cases where the taxpayer still disagrees with some or all the points raised by the tax controllers.

Once the second answer is filed by the taxpayer, there will be no other written correspondences with the tax auditors.

In cases where the tax administration agrees to the clarifications, explanations, arguments, and documents provided by the taxpayer, then the tax audit will be closed. However, in cases where the tax administration still disagrees with some or all the evidence provided by the taxpayer, then the taxpayer will receive a tax assessment notice and will have to pay the notified taxes. The tax assessment notice has to take into consideration the taxpayer’s observations enclosed in the first and the second opposition filed by the taxpayer.

Further to the receipt of the tax assessment notice, the taxpayer may make an appeal to the relevant court.

A preliminary tax audit does not prevent an in-depth tax audit of the same period and the same taxes.

In-depth tax auditIn case of an in-depth tax audit, the taxpayer under control is notified 15 days prior to starting the audit. This period may be extended to a maximum period of 60 days.

In-depth tax audits deal with the accounts of the taxpayer under control (in cases where the taxpayer has the obligation to maintain accounts according to the accounting legislation into force) as well as any other evidence (presumptions, registered contracts, etc.).

In-depth tax audits take place, as a general rule, on the business premises of the taxpayer. However, and upon the request of the taxpayer or the tax controllers, the tax audit can be conducted in the tax authorities’ office. In this case, books, records, and any other documentation deemed necessary to the tax auditors to complete the audit have to be moved to the tax auditors’ office.

In-depth tax audits last for:

• six months, in case the taxpayer under control is constrained by the law to maintain accounts, and

• one year, in the other cases.

At the end of this period, the tax audit must come to an end and the tax auditors must draw up a tax audit report to be sent to the taxpayer, whereby the outcome of the audit activity must be detailed and the findings, if any, must be illustrated and motivated.

Once the tax audit report is sent to the taxpayer, the procedure of response and deadlines are the same as for preliminary tax audits.

Statute of limitationsThe period open for tax audit, unless it was subject to a previous in-depth tax audit, is:


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• Four years in case of partial omission; an omission is considered as partial in cases where the tax return is filed but the taxable base is not determined properly or in cases where the WHT rates applied to payments made to third parties are lower than the rates provided by the law.

• Ten years in case of total omission; an omission is considered as total in cases where the tax return is not filed at the date when the company becomes under tax control.

The four-year period and the ten-year period begin to run from 1 January (in cases where the fiscal year coincides with the calendar year) of the year following the completion of sales, earnings, receipt, or disbursement of any sum to be taxed.

Topics of focus for tax authoritiesThe tax authorities primarily focus on extraordinary transactions (e.g. mergers, restructuring, suspension of business). After introducing a transfer pricing provision as a part of the 2009 law, the tax authorities are increasing their attention towards transactions concluded between affiliated companies.

Uganda 392www.pwc.com/taxsummaries

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PwC contact

Francis KamulegeyaPricewaterhouseCoopersCommunications House10th Floor1 Colville StreetKampalaUgandaTel: +256 414 236 018Email: [email protected]


Effective 1 July 2016, the following amendments were made to the Income Tax Act (ITA), Value-added Tax (VAT) Act, Excise Duty Act, Finance Act, and Stamp Duty Act.

Income taxThe Act introduces an amendment to Section 38 of the ITA to clarify that the ability to carry forward tax losses is subject to change in control provisions. Generally, tax losses can be carried forward indefinitely. However, for a company, this is restricted where there has been a change in control (i.e. a 50% or greater change in the underlying ownership) unless for a period of two years thereafter the company continues to carry on the same business and does not engage in a new business or investment with the primary purpose of utilising the losses against the resultant income. The amendment to Section 38 clarifies that the change in control restriction takes precedence over the general loss carryforward provisions. This has generally been the approach applied in practice, so the amendment represents a confirmation rather than a significant change.

Rent derived by a non-resident from a source in Uganda was previously included on the list of payments that are subject to withholding tax (WHT), but the Act omitted to impose a specific tax rate under Section 83 of the ITA. The amendment of Section 83 now remedies this omission by including rent amongst the payments to non-residents that are subject to the tax rate of 15%. This means that, for example, a tenant paying rent to a non-resident landlord in respect of land and buildings in Uganda is now required to deduct WHT on the gross payments at a rate of 15%.

The Act amends the previous Section 88(5) of the ITA to introduce the principle of beneficial ownership and economic substance. Previously, the limitation of benefit was based on the concept of underlying ownership. Following the amendment, the benefit of the exemption or reduction of tax shall not be available to any person who:

• receives the income in a capacity that is other than that of a beneficial owner, within the meaning accorded to that term by the relevant international agreement, and who does not have full and unrestricted ability to enjoy that income and to determine its future uses, and

• does not possess economic substance in the country of residence.

This does not apply to public listed companies.

PwC Worldwide Tax SummariesUganda393

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A specific WHT requirement is introduced in relation to payments to non-residents who derive income from sources in Uganda from international carriage and telecommunications services. The ITA imposes tax at the rate of 2% on every non-resident person carrying on the business of ship operator, charterer, or air transport operator who derives income from the carriage of passengers or cargo that is embarked in Uganda, and on road transport operators who derive income from the carriage of cargo or mail embarked in Uganda. However, this does not apply to payments for international air transport because the income of air transport operators is exempt from tax. Where the tax of 2% was already a requirement, the mode of collection is now confirmed to be in the form of withholding.

The Act also imposes a specific withholding obligation in respect of tax at the rate of 5% on a non-resident person who carries on the business of transmitting messages by cable, radio, optical fibre, or satellite in respect of income from the transmission of messages by an apparatus located in Uganda or the provision of direct-to-home pay television or Internet connectivity services to Ugandan subscribers. In each case, the tax is applied on the gross income and is a final tax.

The International Centre for Research in Agroforestry (ICRAF) and the International Potato Centre have been included as listed institutions in the First Schedule to the ITA. This means that the income of these entities is exempt from income tax.

The Act removes clinics as a separate category of business subject to specific rates of presumptive tax on turnover below 50 million Ugandan shillings (UGX). Presumably, the purpose of the amendment is to ensure consistence with Section 4(7), which prevents the use of the presumptive tax system by persons in the business of providing medical or dental services. There is also a small adjustment to the presumptive tax amount payable by drug shops with a turnover between UGX 10 million and 20 million.

Furthermore, the Act makes the following changes to Part IXA of the ITA in relation to mining and petroleum operations.

Meaning of licenseeThe definition of ‘licensee’ for the purposes of petroleum and mining operations is re-worded to cover persons undertaking upstream and midstream petroleum activities by reference to the correct respective piece of legislation.

Allowable deductions for petroleum explorationFor petroleum exploration licences issued after 31 December 2015, a new provision now limits the deduction of expenditure against petroleum operations to the extent such limitation is specified in the petroleum sharing agreement (PSA). This enables the government to agree and enforce special deduction terms in each individual PSA.

Surplus from decommissioning fund returned to a licenseeThe Act repeals Section 89GD(4)(b), which provided that a surplus in a decommissioning fund that is returned to the licensee upon completion of decommissioning is included in the licensee’s gross income. This provision is redundant as such returns are already captured as income under sub paragraph (a).

Petroleum exploration informationThe definition of ‘petroleum exploration information’ is repealed. This definition is redundant as it is not applied anywhere else in Part IXA of the Act.


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Value-added tax (VAT)Persons undertaking midstream operations in the petroleum sector (such as refining, conversion, transmission, and storage) are entitled to apply for voluntary VAT registration regardless of whether they are making taxable supplies or not.

LED lamps and bulbs, which are exempt from import duty in accordance with the Fifth Schedule of the EAC Customs Management Act, have been specifically excluded from the normal parallel exemption for import VAT. This means that the import of LED lamps and bulbs is subject to VAT at the standard rate of 18%.

The Act introduces a special treatment for VAT on taxable supplies made by a supplier to a contractor executing an aid-funded project, whereby:

• The VAT on supply is deemed to have been paid by the contractor to the supplier.• The supplier and contractor do not account for the deemed VAT payment as output

tax and input tax, respectively.

The term ‘aid-funded project’ is not defined, but the same term is used in determining exemption from import duty under the East African Community (EAC) Customs Management Act. To qualify for the special VAT treatment, the supply must be used by the contractor solely and exclusively for the aid-funded project.

A person providing business process outsourcing (BPO) services is now entitled to claim input tax credit for VAT incurred on imported services. The Act does not define the term BPO, but it is generally taken to mean the contracting out of a specific business process to a third party.

The Act extended the current exemption from VAT on unprocessed agricultural products to unprocessed wheat grain. Since 2013, the supply of unprocessed wheat grain was subject to VAT at 18%, as the VAT exemption did not apply to unprocessed wheat grain.

The Act removed the supply of solar power from the list of exempt supplies in the Second Schedule to the VAT Act. This means that the supply of solar-generated power is now subject to VAT at the standard rate of 18%, in the same way as other sources of electricity (such as hydro and thermal). This will enable suppliers of solar power to register for VAT purposes and claim the input VAT on their purchases.

The Act extended the current VAT exemption for supplies to the contractors and subcontractors of hydro power projects to also encompass solar power, geothermal power, and biogas and wind energy projects. This means that VAT does not apply to the supply of construction and other pre-operation goods and services procured by such projects up to the point that they commence commercial production. Given that the VAT Act currently does not permit such projects to be VAT registered until the start of production, this will prevent the pre-operation VAT from becoming an additional cost.

In addition, the Act added hullers, oil presses, grain dryers, manure spreaders, fertiliser distributors, transplanters, juice presses and crushers, seed and grain shellers, silage chopper machines, colour sorters for coffee, and coffee roasters to the list of agricultural items exempt from VAT.


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Excise dutyEffective 1 July 2016, a manufacturer can claim a refund of excise duty that was previously paid on excisable goods that are converted into approved healthcare or medical products.

Approved healthcare or medical products are products that have been approved by the Minister responsible for finance in consultation with the Minister responsible for health, in accordance with specific regulations. This may include items such as un-denatured spirits converted for medical use or furniture converted for specialised use in a hospital.

Further, the table below shows goods where excise duty was amended:

Goods Excise dutySoft cap cigarettes UGX 50,000 per 1,000 sticksHinge lid cigarettes UGX 80,000 per 1,000 sticksCigars, cheroots, and cigarillos containing tobacco 200%Smoking tobacco, whether or not containing tobacco constituents in any portion

200%

Homogenised or reconstituted tobacco 200%Other cigarettes 200%Other spirits 80%Motor spirit (gasoline) UGX 1,100 per litreGas oil UGX 780 per litreMotor vehicle lubricants 10%Cane or beet sugar and chemically pure sucrose in solid form UGX 100 per kgSugar confectioneries (chewing gum, sweets, and chocolates) 20%Creams used by persons with albinism in the treatment of their skin 0%Specialised hospital furniture 0%Other furniture 10%

Stamp dutyThe Stamps Amendment Act has increased the fixed rate of stamp duty to UGX 10,000 for all instruments that were previously chargeable with stamp duty of UGX 5,000. This means that all transaction costs on instruments that were subject to stamp duty of UGX 5,000 have now been adjusted upwards to UGX 10,000 effective 1 July 2016.

Stamp duty that is applicable on an exchange of property has been increased from 1% to 2% of the total value. This provision applies to exchange of property such as land, buildings, shares, etc.

Similarly, stamp duty on a transfer of property increased from 1% to 1.5% of the total value of the property. This means that any property transfers concluded on 1 July 2016 and after will be subject to the stamp duty of 1.5% on the value of the property that is being transferred. This marks a significant increase from 1%, which has been in place for many years.

Finance (Amendment) ActThe Finance (Amendment) Act imposes import duty on lubricants, un-denatured alcohol, steel, steel products, electronics (including fridges, washing machines, radios, DVD players, and television sets), paper, and paper products diapers.


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The Finance (Amendment) Act also waived all tax arrears owed by savings and credit co-operative organisations (SACCOs) as of 31 December 2015. SACCOs that engage in investment of membership funds derive investment income that is subject to income tax, and they also have obligations in respect of other taxes, such as withholding and employment taxes. However, in practice, the level of tax compliance by SACCOs has varied and some have accrued significant tax arrears. This waiver offers an opportunity for SACCOs to begin complying with their tax obligations from 1 July 2016 on a clean slate.

There are over 200 registered SACCOs in Uganda, and their compliance is expected to make a positive contribution to government revenue.

Further, the Finance (Amendment) Act repealed the fees under the Mining Act 2003 to the extent prescribed under the Finance Acts of 2013 and 2014. In line with this amendment, the Ministry of Justice and Constitutional Affairs issued the Mining (Amendment) Regulations, 2016 to give effect to the amendment to the Finance Act and to introduce new fees under the Mining Act.

The Tax Procedures Code ActThe Tax Procedures Code Act, which was published on 19 October 2014, became effective on 1 July 2016. The Act regulates the procedures for the administration of specified tax laws in Uganda. The main purpose of the Act is to:

• harmonise and consolidate the tax procedure under existing tax laws, and• provide for related matters.

Amendment Bills for the Financial Year 2017/18The Tax Amendment Bills for the Financial Year 2017/18 were presented by the Minister of Finance to Parliament. Some of the proposed changes in the tax laws are summarised below. These changes, if passed into law, will be effective 1 July 2017.

Income taxThe Income Tax Act (Amendment) Bill 2017 proposes to:

• Include a body established by law for the purpose of regulating the conduct of professionals on the list of exempt organisations and therefore exempt their income from income tax. This includes bodies like Uganda Law Society, Institute of Certified Public Accountants, etc.

• Give power to the Minister of Finance to prescribe estimates of rent based on the rating of the rental property in a specific location. The proposed amendment is to be applied to persons who fail to file a return of rental income or whose return is misleading on the face of it and has been contested by the Commissioner.

• Exempt the income of Bujagali Hydro Power Project from tax up to 30 June 2033.• Re-introduce initial allowance deduction at 50% of the cost base of plant and

machinery wholly used in the production of income included in gross income. The initial allowance deduction is applicable to plant and property placed into service for the first time during a year of income outside a radius of 50 kilometres from Kampala.

• Re-introduce initial allowance on industrial buildings at 20% of the cost base of a new industrial building or extension of an industrial building on which construction was commenced on or after 1 July 2000 and placed into service for the first time during the year of income. Previously, the initial allowance provisions were repealed in July 2014.


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• Re-introduce the WHT at 15% on gross payments for winnings of sports betting or pool betting, which had been repealed with effect from 1 July 2016.

• Require for providers of passenger transport service or freight transport service where the vehicle used has a loading capacity of at least 2 tonnes, to pay advance tax at UGX 50,000 per tonne per year for goods vehicles and UGX 20,000 per seat per year for passenger service vehicles.

• Require financial institutions, micro-finance institutions, forex exchange bureaus, and money transferring institutions to report to the Commissioner any transaction exceeding UGX 20 million not later than 15 days after the end of the month in which the transaction was undertaken or as may be required by the Commissioner.

• Allow for waiver of interest on unpaid tax that is in excess of the aggregate of the principal tax and penal tax.

• Amend the formula for determining the value of a benefit that accrues to employees who are provided with a company motor vehicle for private use by taking into account depreciation of the vehicle.

• Limit deduction of costs by petroleum companies to cost oil rather than gross income. Cost oil is the licensee’s share of the total oil production that is set aside for recovery of their costs.

VATThe VAT (Amendment) Bill 2017 proposes to:

• Extend the special VAT treatment for aid-funded projects to include taxable supplies made to a government ministry, department, or agency by a contractor executing an aid-funded project where the supply is for use solely or exclusively for the aid-funded project. Previously, the special treatment only applied to supplies made to contractors.

• Disqualify a claim for input VAT in respect of taxable supplies amounting to UGX 100 million (excluding VAT) or more that are paid or payable in cash.

• Reinstate within the principal VAT Act the due dates for the payment of VAT as follows:• In the case of a taxable supply by a taxable person in respect of a tax period, on

the date the return for the period is lodged.• In the case of an assessment, on the date specified in the notice of assessment.• In any other case, on the date the taxable transaction occurs.

• Reinstate provisions for the payment and recovery of tax payable or due under an assessment where an objection to or notice of appeal has been lodged against an assessment.

• Cap the interest payable on unpaid tax to a maximum of the aggregate of the principal tax and penal tax.

• Reinstate the VAT at 18% on the supply of wheat grain.• Provide for VAT exemption of certain goods and services, including the supply of

animal feeds and premixes, the supply of crop extension services, the supply of irrigation works, sprinklers, and ready to use drip lines, the supply of deep cycle batteries and lanterns, the supply of tourist arrangement services, access to tourist sites, tour guide, and game driving services, and the supply of menstrual cups.

Excise dutyThe Excise Duty (Amendment) Bill 2017 proposes to:

• Increase excise duty on soft cup cigarettes from UGX 50,000 to UGX 55,000 per 1,000 sticks and on furniture imported or assembled in Uganda from foreign materials (excluding specialised hospital furniture) from 10% to 20%.


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• Introduce a new specific rate regime for certain beverages where excise duty will be calculated as the higher of a specific rate (i.e. based on volume) and an ad valorem rate (based on value). These items are currently subject to an ad valorem rate. The proposed changes are as follows:• A specific rate of excise duty of UGX 1,860 per litre on malt beer as an alternative

to the ad valorem rate of 60%, whichever is higher.• A specific rate of excise duty of UGX 700 per litre on beer whose local raw

material content, excluding water, is at least 75% by weight of its constituent as an alternative to the ad valorem rate of 30%, whichever is higher.

• A specific rate of excise duty of UGX 950 per litre on beer produced from barley grown and malted in Uganda as an alternative to the ad valorem rate of 30%, whichever is higher.

• A specific rate of excise duty of UGX 5,000 per litre on spirits made from locally produced raw materials as an alternative to the ad valorem rate of 60%, whichever is higher.

• A specific rate of excise duty on non-alcoholic beverages (excluding fruit or vegetable juices) of UGX 240 per litre as an alternative to the ad valorem rate of 13%, whichever is higher.

• Introduce excise duty on fruit juice and vegetable juice, except juice made from at least 30% of pulp from fruit and vegetables grown in Uganda at 13% or UGX 300 per litre, whichever is higher.

• Revise the excise duty rate on un-denatured spirits from UGX 1,000 per litre or 100%, whichever is higher, to UGX 2,500 per litre or 100%, whichever is higher.

• Revise the ad valorem rate and introduce an alternative specific rate of excise duty on other wines from 80% to 60% or UGX 6,000 per litre, whichever is higher.

• Reduce excise duty on sugar confectionaries (chewing gum, sweets, and chocolates) from 20% to 0% and furniture manufactured in Uganda using local materials, excluding furniture which is assembled in Uganda, from 10% to 0%.

Tax administrationThe Tax Procedure Code (Amendment) Bill 2017 proposes to:

• Clarify the due dates for filing of provisional returns as follows:• Individuals are required to file four provisional returns on or before the last day of

the third, sixth, ninth, and 12th months of the year in respect of their tax liability for the respective periods.

• Taxpayers other than individuals are required to file two provisional returns on or before the last day of the sixth and 12th months in respect of their tax liability for the respective periods.

• Amend the due date of filing provisional returns by persons licensed under the Lotteries and Gaming Act as follows:• A weekly return by Wednesday of the following week.• A monthly return by the 15th day of the following month.

• Introduce a requirement for persons dealing in locally manufactured and imported goods to affix on the goods a tax stamp to be prescribed by the Minister of Finance with a penalty for failure to affix a tax stamp.

• Clarify the hierarchy of payment of taxes where a taxpayer is liable for penal tax and interest in relation to a tax liability and the taxpayer makes a payment less than the total amount of tax, penal tax, and interest. The amount paid will be used to first offset the principal tax, then the penal tax, and the balance is applied to the interest due.


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• Introduce a penal tax of UGX 50 million for failure to provide records requested by the Commissioner in respect of transfer pricing and UGX 20 million in respect of other information (other than transfer pricing) within 30 days after the request.

Lotteries and gamingThe Lotteries and Gaming (Amendment) Bill 2017 proposes to revise the rate of tax on operators of casinos and gaming and betting activities from 35% to 20%.


A resident company is taxed on its income from all geographical sources. A non-resident company is only subject to Uganda income tax on income derived from sources in Uganda.

The income tax rate applicable to the chargeable income of companies is 30%, with the exception of resident companies whose turnover does not exceed UGX 150 million, to whom presumptive tax applies (see below).

Chargeable income is gross income for the year less the total deductions allowed under the ITA.

Resident companies with turnover of less than UGX 150 millionA rate of 1.5% of turnover is used to determine income tax payable by a resident company whose turnover is between UGX 50 million and UGX 150 million, subject to certain thresholds.

However, on application to the Commissioner, a resident company with a turnover of less than UGX 150 million may be taxed at 30%.

This category excludes professionals, public entertainment services, public utility services, or construction services.

Local income taxesThere are no other income taxes in Uganda.

Corporate residence

A company is resident in Uganda for a year of income if it meets one of the following criteria:

• Is incorporated or formed under the laws of Uganda.• Has its management and control exercised in Uganda at any time during the year of

income.• Undertakes the majority of its operations in Uganda during a year of income.

Permanent establishment (PE)A PE (branch) means a place where a person carries on business, and includes:

• A place where a person is carrying on business through an agent, other than a general agent of independent status acting in the ordinary course of business as such.


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• A place where a person has, is using, or is installing substantial equipment or substantial machinery.

• A place where a person is engaged in a construction, assembly, or installation project for 90 days or more, including a place where a person is conducting supervisory activities in relation to such a project.

• The furnishing of services, including consultancy services, by an enterprise of a contracting state through employees or other personnel engaged in the other contracting state, provided that such activities continue for the same or a connected project for a period or periods aggregating more than four months within any 12-month period.

Other taxes

Value-added tax (VAT)VAT is governed by the VAT Act and administered by the Uganda Revenue Authority (URA). VAT is charged at the rate of 18% on the supply of most goods and services in the course of business in Uganda. Specified goods and services, as well as exports outside of Uganda, attract a zero rate of tax.

Some supplies are exempt from VAT, the main categories being government subsidies, some unprocessed foodstuffs, financial services, health and life insurance, re-insurance services, unimproved land, leases and sale of certain residential properties, betting and gaming, education, medical and health services, social welfare services, pesticides, and petroleum products subject to excise duty.

Zero rating is preferable to exemption because the VAT on costs incurred in making a zero-rated supply can be recovered while those incurred in making an exempt supply cannot be recovered.

The zero-rated supplies include the supply of goods and services exported from Uganda; the supply of drugs and medicines; the supply of seeds, fertilisers, pesticides and hoes; the supply of leased aircraft, aircraft engines, spare engines, spare parts for aircraft, and aircraft maintenance equipment.

The annual threshold for VAT registration is UGX 150 million. Persons who make supplies that are VATable and whose turnover exceeds UGX 150 million are required to register for VAT with the URA. VAT-registered persons are required to:

• Charge VAT whenever they make supplies that are VATable.• File monthly returns before the 15th day of the month following the

reporting month.

Credit for input taxA person making exempt, zero-rated, and standard supplies can recover all the input VAT if the exempt supplies are less than 5% of the total supplies. However, if the exempt supplies are more than 5% but less than 95%, the person is required to recover only a portion of the VAT input tax corresponding to the percentage of the taxable supplies. If the exempt supplies exceed 95%, the person cannot recover any input VAT.

Imported servicesThe VAT Act defines a supply of service to mean any supply that is not a supply of goods or money, including the performance of services for another person.


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There is no definition of imported services in the local legislation. However, the tax authorities generally consider an imported service to be one provided by a person normally resident outside Uganda who is not required to register for VAT in Uganda. According to Regulation 14 of the VAT Regulations 1996, any person who imports a service into the country must account for VAT on such a service. The Regulations require the person importing the service to account for the VAT at the time when performance of the service is completed, when payment for the service is made, or when the invoice is received from the foreign supplier, whichever is earliest.

The tax on such imported services is computed at the rate of 18% of the cost of the service. VAT-registered companies are no longer required to prepare self-billed tax invoices, thus they are unable to claim the VAT paid as input tax; however, a contractor or licensee in the petroleum and mining industry is able to claim an input tax credit for the reverse charge VAT paid on imported services. Also, persons provided BPO services are allowed to claim credit for input tax for VAT paid on imported services. Further, if the importer of the services is not registered for VAT, the importer is required to calculate and pay the VAT to the URA.

Failure to pay VAT on non-exempt imported services is tantamount to lack of compliance with the law, and a penalty of 2% per month, compounded, may apply.

VAT representative for non-resident personsThe Tax Procedure Code Act now provides for a role of tax representative for a non-resident person being the individual controlling the person’s affairs in Uganda, including a manager of a business of that person or any representative appointed in Uganda.

The VAT Act previously provided for the appointment of a VAT representative by a non-resident person who may have been required by the Commissioner to register for VAT in Uganda but had no fixed place of business. It also provided that if the non-resident person did not appoint the VAT representative within 30 days after being required to register for VAT, the Commissioner could appoint the representative for the non-resident person.

A tax representative under the Tax Procedure Code Act is responsible for performing any duty obligation imposed by a tax law on the taxpayer, including submission of tax returns and payment of tax.

Customs dutiesMany goods imported into Uganda are subject to customs duties. However, exemptions are available to various classes of plant and machinery imported into Uganda. The rates of duty are provided by the East African Community common external tariff code. Certain products imported from the East African Community and the Common Market for Eastern and Southern Africa (COMESA) region enjoy special custom duty rates. Imported items are classified according to the nomenclature established under the international convention on the harmonised commodity description and coding system. Duties range from 0% to 60%, depending on the item imported.

Excise dutiesExcise duties are imposed on goods considered luxuriant. Examples include locally manufactured soft drinks, cigarettes, alcoholic drinks, and spirits. A schedule of some of the rates is provided below:


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Goods Excise dutySoft cap cigarettes UGX 50,000 per 1,000 sticksHinge lid cigarettes UGX 80,000 per 1,000 sticksCigars, cheroots, and cigarillos containing tobacco 200%Smoking tobacco whether or not containing tobacco substitutes in any proportion

200%

Homogenised or reconstituted tobacco or other tobacco 200%Beer made from malt 60%Beer made from local raw material 30%Beer produced from barley grown and malted in Uganda 30%Spirits produced from local raw materials 60%Other spirits, except undenatured spirits, which are subject to duty up to 100%

80%

Wine produced from local raw materials 20%Other wine 80%Air time applicable to mobile cellular devices 12%Air time applicable to landlines and public pay phones 5%Fuel and oils Between UGX 200 and UGX 1,000 per litre,

depending on the type of fuel/oil. Nil for gas oil and thermal power generation to the

national grid.Motor spirit (gasoline) UGX 1,100 per litreGas oil (automotive, light, amber for high speed engine) UGX 780 per litreMotor vehicle lubricants 10%Chewing gum, sweets, and chocolates 20%Other furniture 10%Specialised hospital furniture 0%

Other goods and services Excise dutyBanking fees 10% of the fees chargedMoney transfers (other than transfers by banks) 10% of the fees chargedCosmetics and perfumes (except creams used by persons with albinism in the treatment of their skin, which attract no excise duty)

10%

Incoming international calls (other than calls from the Republic of Kenya, the Republic of Rwanda, and the Republic of South Sudan)

USD* 0.09 per minute

Cement UGX 500 per 50 kgCane or beet sugar and chemically pure sucrose in solid form UGX 100 per kg

* United States dollars

Property taxesProperty taxes are administered by the local authorities annually. They are based on the value of the property as assessed by the local authorities.

Stamp dutiesStamp duty is charged on a number of transactions at varying rates. Stamp duty is charged at 1% of the total value for a number of instruments, including hire purchase agreements, composition deeds, leases, conveyance, transfers, share warrants, gifts, and agreements relating to deposit of title deeds.

Stamp duty of 0.5% is incurred on formation of a company, capital-raising activities (e.g. increase of share capital), debentures, equitable mortgages, and mortgage deeds.


Uganda

Stamp duty of 1.5% applies on all transfers, including transfer of shares and property.

Stamp duty of 2% applies on exchange of property.

No stamp duty is charged on the increase of share capital where it is in fulfilment of a condition precedent for acquiring loan funds for a development project or where it is made on becoming public through the stock exchange.

Stamp duty of UGX 10,000 is also charged in a number of various other instruments.

Environmental leviesEnvironmental levies are charged on every person who imports motor vehicles that are eight years old or older. Levies are also imposed on the importation of used household appliances. The levy on motor vehicles is 20% of the value of the vehicle as determined for customs duty purposes. Levies on electrical appliances range from UGX 20,000 to UGX 50,000 per item, depending on the nature of the item.

Payroll taxesThe employer is required to withhold tax on employment income from their employees and pay it to the tax authorities. The tax is normally borne by the employee. Where the employer fails to withhold tax as required, the employer becomes liable for the taxes but may recover the same from the employees.

Social security contributionsAn employer is obligated to make contributions to the national social security fund for each employee, amounting to 10% of their gross pay.

Branch income

Tax is imposed on the income of a non-resident company derived from running a branch in Uganda. The chargeable income of a branch in Uganda is taxed at the corporation tax rate of 30% after deduction of allowable expenses.

In addition to corporation tax, branches are subject to extra tax at a rate of 15% on any repatriated income for a year of income. The repatriated income is calculated using the A + (B - C) - D approach. Where A is the net assets at the beginning of the year, B is the net profit for the year, C is the tax charge for the year, and D is the net assets at the end of the year.


In arriving at chargeable income (taxable income), one has to go through the process of adjusting profits by taking into account deductions allowed and deductions not allowed.

Inventory valuationA taxpayer is allowed a deduction for the cost of trading stock disposed of during the year, which is determined by adding to the opening value of the trading stock the cost of trading stock acquired during the year and subtracting the closing value of stock. The opening value of the stock is the closing value for the previous year or, where the taxpayer commenced business during the year, the market value at the time of


Uganda

commencement of the business of the trading stock acquired prior to commencement. The closing stock valuation method is the lower of cost or market value. Trading stock is allowed to be valued using either the absorption costing or prime cost method. The stock valuation method chosen may not be changed, except with written permission of the Commissioner.

Capital gainsCapital gains are included in and taxed together with the business income at a rate of 30%. There is no separate capital gains tax. Capital gains arise on disposal of non-depreciable business assets as well as sale of shares.

Dividend incomeThe general rule is that dividend income is taxable as part of business income at a rate of 30%. Dividend income is also subject to WHT at the rate of 15%. The WHT paid in respect of the dividend income is creditable where the income is subject to the corporation tax rate of 30%. The WHT rate for dividend payments to resident persons is 15%. For dividends paid out by companies listed on the stock exchange to individuals, the rate is 10%.

Dividend income is exempt from tax if the recipient company directly or indirectly controls the paying company through ownership of 25% or more of the voting power of the paying company.

Interest incomeThe general rule is that interest income is taxable as part of business income at a rate of 30%. Interest income is also subject to WHT at the rate of 15%. The WHT paid in respect of the interest income is creditable where the income is subject to the corporation tax rate of 30%. Also, interest income earned with respect to government securities is subject to tax at 20% as a final tax.

Royalty incomeThe general rule is that royalty income is taxable as part of business income at a rate of 30%. Royalty income is also subject to WHT at the rate of 15%. The WHT paid in respect of the royalty income is creditable where the income is subject to the corporation tax rate of 30%.

Rental incomeCompanies are required to disclose their rental income separately from other business income. Taxable rental income is the net income after allowing for any expenditures and losses in respect of the rental income derived. The rate of tax applicable is 30%.

Foreign incomeForeign income is taxable on resident recipients, and tax suffered in the country where it is sourced (if any) is creditable, subject to the provisions of any double taxation agreements (DTAs). This credit is limited to the amount of Ugandan tax payable on that income.

There are no provisions for deferring tax on income earned abroad by tax residents.


Uganda

Deductions

The ITA sets out the following conditions for deductibility of an expense:

• There must be an expenditure or loss.• The expenditure or loss must be incurred by a person during the year of income.• The expenditure must be incurred in the production of income included in gross

income.

A taxpayer who is accounting for tax purposes on an accrual basis derives income when it is receivable by the taxpayer and incurs expenditure when it is payable by the taxpayer.

An amount is treated as payable by the taxpayer when all the events that determine liability have occurred and the amount of the liability can be determined with reasonable accuracy, but not before economic performance with respect to the amount occurs. Economic performance occurs:

• with respect to the acquisition of services or property, at the time the services or property are provided

• with respect to the use of property, at the time the property is used, or• in any other case, at the time the taxpayer makes payment in full satisfaction of

the liability.

Contingent liabilities are not tax-deductible in Uganda.

DepreciationA deduction is allowed for the depreciation of the person’s depreciable assets, other than minor assets, in accordance with the appropriate applicable rates. The ITA allows a taxpayer a deduction for the depreciation of their depreciable assets on a reducing-balance basis. Depreciable assets are classified in four classes as follows:

Class Assets includedRate of tax

depreciation (%)1 Computers and data handling equipment. 402 Automobiles, buses, and mini-buses with a seating capacity of less

than 30 passengers; goods vehicles with a load capacity of less than 7 tonnes; construction and earth moving equipment (cost of motor vehicle sealed at approximately UGX 60 million for non-commercial vehicles).

35

3 Buses with a seating capacity of 30 or more passengers; goods vehicles designed to carry or pull loads of 7 tonnes or more; specialised trucks, tractors; trailer-mounted containers; plant and machinery used in farming, manufacturing, or mining operations.

30

4 Rail cars, locomotives, and equipment; vessels, barges, tugs, and similar water transportation equipment; aircraft; specialised public utility plant, equipment, and machinery; office furniture, fixtures, and equipment; and any depreciable asset not included in another class.

20

Industrial building allowanceA company is eligible for an industrial building allowance on its industrial and commercial buildings at a tax rate of 5% per annum on a straight-line basis. The industrial building allowance will be granted on the actual cost incurred in constructing the buildings.


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An industrial building is defined to mean any building that is wholly or partly used, or held ready for use, by a person in manufacturing operations, research and development into improved or new methods of manufacture, mining operations, an approved hotel business, an approved hospital, or approved commercial buildings.

GoodwillAn intangible asset is amortisable over its useful life. To the extent that the useful life of the underlying asset that gives rise to goodwill can be determined, then the goodwill maybe deductible over the useful life of the asset.

Start-up expensesA company setting up business for the first time or engaged in the initial public offer at the stock market will be entitled to a tax deduction for all its start-up costs that are of capital nature that would otherwise not be tax-deductible under the ordinary tax rules. The start-up costs will be allowed as tax-deductible costs over a period of four years on a straight-line basis at the rate of 25% per annum.

Interest expensesInterest is deductible if the interest is incurred in respect of a debt obligation by the company in the production of income included in the company’s gross income. Interest arising from non-trade-related debt obligation is not deductible. Deferred interest is deductible when paid.

Interest charged before capital investment is put to use has to be capitalised. Interest incurred after capital investment is put to use is allowed as a deduction.

If the company is foreign controlled, then the interest arising from the loan in excess of one and a half times the company’s equity will not be allowed (see Thin capitalisation in the Group taxation section for more information).

Bad debtA deduction is allowed for bad debt only if:

• the amount was included in the person’s income in the year of income• it is in respect of money that was lent in the ordinary course of business by a

financial institution in the production of income, or• the amount of the debt claim was in respect of a loan granted to any person by a

financial institution for the purpose of farming, forestry, fish farming, beekeeping, animal and poultry husbandry, or similar operations.

For the bad debt to be deductible, the taxpayer must demonstrate to the URA that reasonable steps to collect the debt were taken and that the taxpayer failed to recover the debt. In relation to a financial institution, it should be a debt in respect of which a loss reserve held against presently identified losses or potential losses, and which is therefore not available to meet losses that subsequently materialise, has been made.

Charitable contributionsCharitable donations are deductible if made to amateur sporting associations; religious, charitable, or educational institutions of public character; trade unions; and other similar associations that have been issued with a written ruling by the Commissioner currently in force stating that it is an exempt organisation. The donations should not exceed 5% of the person’s chargeable income.


Uganda

Meals, refreshments, and entertainmentExpenses for meals, refreshments, and entertainment are deductible only where the value is included in the employment income of the employees or is excluded from employment income owing to the fact that it is provided on equal terms to all workers.

Pension expensesEmployers are allowed a deduction for the contributions made to pension schemes on behalf of their employees. Employees, on the other hand, do not get a deduction for the contributions they make to pension funds.

Payment for directorsDirectors are treated as employees, so expenses incurred in respect of directors are deductible expenses.

Bribes, kickbacks, illegal paymentsNon-business expenses are not tax-deductible, including those of a private nature.

Fines and penaltiesNo deduction is allowed for any fine or similar penalty paid to a government or its sub-division for breach of any law.

TaxesNo deduction is allowed for income tax payable in Uganda or in a foreign country.

Other significant itemsNo deduction is allowed for the following other expenditures:

• Any expenditure or loss of a domestic or private nature.• Any expenditure or loss of a capital nature.• Any expenditure or loss recoverable under insurance contract or indemnity.• Any contribution or similar payment made to a retirement fund by the employee

or for the benefit of any other person (e.g. National Social Security Fund [NSSF] contributions).

• Any premium or similar payment made in respect of a life insurance policy for the life of the person paying the premium or on the life of some other person.

• Any income appropriated to a reserve fund or capitalised in any way.• The amount of pension paid to any person.

Net operating lossesA deduction is allowed for any assessed tax losses carried forward from previous years of income. Such tax losses are carried forward and deducted against future taxable profit of the business in the subsequent years of income. The losses can be carried forward indefinitely. There is no ring-fencing of losses except in the following circumstances:

• Where, during a year of income, there has been a change of 50% or more in the underlying ownership of a company, as compared with its ownership one year previously, the company is not permitted to deduct an assessed loss in the year of income or in subsequent years, unless the company, for a period of two years after the change or until the assessed loss has been exhausted if that occurs within two years after the change,:• continues to carry on the same business after the change as it carried on before

the change and


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• does not engage in any new business or investment after the change where the primary purpose of the company or the beneficial owners of the company is to utilise the assessed loss so as to reduce the tax payable on the income arising from the new business or investment.

• In cases where losses relate to farming, the assessed farming loss can only be deducted from farming income of the taxpayer in the following year and not from any other income.

There is no provision for carryback of losses in Uganda.

Payments to foreign affiliatesPayments to foreign affiliates are deductible as long as they are charged at an arm’s length and incurred in the production of income.

Group taxation

There are no specific provisions in the law covering groups, so companies in a group do not get any special treatment for tax purposes in Uganda.

Transfer pricingThe transfer pricing regulations apply to controlled transactions if a person who is a party to the transactions is located in and is subject to tax in Uganda and the other person who is a party to the transaction is located in or outside Uganda.

The URA Practice Note issued on 14 May 2012 gives details on the transfer pricing documentation to be maintained by the taxpayer. These include company details and transaction details, including agreements and the pricing methodology used in determining the arm’s-length price.

In addition, the anti-avoidance provisions contained in Sections 90 and 91 of the ITA require transactions between associates to be at an arm’s-length. These are the provisions that are often applied by the URA in instances where they are of the view that a non-resident person may be transferring profits from Uganda.

Thin capitalisationWhere a company intends to finance some of its Uganda operations by use of foreign debt, the ITA provides for thin capitalisation rules in Uganda, and the safe harbour debt-to-equity ratio is 1.5:1.

The thin capitalisation rules are provided for in Section 89(1) of the ITA. According to this Section, where a foreign-controlled resident company, other than a financial institution, has a debt-to-equity ratio in excess of 1.5:1 at any time during the year of income, a deduction is disallowed for the interest paid by the company during that year on that part of the debt that exceeds the 1.5:1 ratio for the period the ratio was exceeded.

These provisions do not apply if, at all times during the year, the amount of the debt does not exceed the arm’s-length debt amount. Arm’s-length debt amount is defined as the amount of debt that a financial institution that is not related to the company would be prepared to lend to the company having regard to all the circumstances of the company.


Uganda

Controlled foreign companies (CFCs)Uganda does not have a CFC regime.


Foreign tax creditA resident taxpayer is entitled to a foreign tax credit for any foreign income tax paid by the taxpayer in respect of foreign-source income included in the gross income of the taxpayer. The foreign tax credit allowed is subject to the income tax rate (i.e. 30%) in Uganda.

Tax holidays for exportersA tax holiday of ten years is available to exporters who export at least 80% of their produce of finished goods, subject to certain conditions.

Scientific research expenditure, training expenditure, and mineral exploration expenditureA 100% allowance is available for scientific research expenditure, training expenditure, and mineral exploration expenditure in the year of expenditure.

Incentives for the importation of plant and machineryPlant and machinery is exempt from customs duty on importation. Additionally, a VAT deferral facility is available where VAT is deferred on importation of plant and machinery and subsequently waived upon approval by the relevant authorities.

Employment incentivesA deduction of 2% of income tax payable is granted to any employer who can prove to the URA that at least 5% of their employees on a full-time basis are people with disabilities.

Other incentivesIncome derived from agro processing is exempt from income tax, subject to certain conditions.

Withholding taxes

Payments to non-resident personsAccording to Section 83(1) of the ITA, a tax is imposed on every non-resident person who derives any dividend, interest, royalty, rent, natural resource payment, or management charge from sources in Uganda. WHT at a rate 15% therefore applies on gross dividend payments, interest, management fees, and royalty payments in respect of non-treaty countries.

Rent for this purpose means a payment for the use of land and buildings. This means that a tenant paying rent to a non-resident landlord in respect of land and buildings in Uganda is now required to deduct WHT on the gross payments at a rate of 15%.

However, Section 83(5) exempts interest paid by a resident company in respect of debentures that:


Uganda

• were issued by the company outside Uganda for the purpose of raising a loan outside Uganda

• were widely issued for the purpose of raising funds for use by the company in a business carried on in Uganda or the interest is paid to a bank or a financial institution of a public character, and

• the interest is paid outside Uganda.

A ‘debenture’ is defined in the ITA as any form of debt, including debenture stock, mortgage stock, loan, loan stock, or any similar instrument acknowledging indebtedness, whether secured or unsecured. The term ‘widely issued’ is also specifically defined.

Also, the rate of WHT on interest derived by a non-resident person from government securities is 20%.

Payment of re-insurance premiums to non-resident persons is subject to WHT at a rate of 10%. The requirement to withhold tax does not apply to the African Reinsurance Corporation and PTA Reinsurance Company.

Non-resident air transport, shipping, and some telecommunications servicesNon-resident ship operators, charterers, and air transport operators who derive income from carriage of passengers who embark, or cargo or mail that is embarked, in Uganda, as well as road transport operators who derive income from carriage of cargo or mail that is embarked in Uganda, are taxed at the rate of 2%.

A non-resident person who carries on the business of transmitting messages by cable, radio, optical fibre, or satellite communication and derives income through transmission of such messages by apparatus established in Uganda, whether or not such messages originated from Uganda, is taxed on one’s gross income at a rate of 5%. Similarly, a non-resident person who derives income from providing direct-to-home pay television services to subscribers in Uganda is taxed on one’s gross income at a rate of 5%.

Payments to resident personsThe rate of 15% also generally applies to payments of dividends and interest to resident persons, except in the following circumstances, where different rates apply:

• Dividends paid to a company controlling 25% or more of the voting powers: 0%.• Dividends paid by companies listed on the Ugandan Securities Exchange to

individuals: 10%.• Interest on government securities: 20%.• Interest paid by a natural person, paid to a financial institution (other than from

government securities), paid by a company to an associated company, and interest that is exempt in the hands of the recipient: 0%.

There is no WHT on royalty payments to resident persons unless the payments are made by a government institution, local authority, company controlled by the government, or a ‘designated payer’.

Double taxation agreements (DTAs)A taxpayer may benefit from the provisions of a DTA that Uganda has with another country.


Uganda

According to Section 88(2) of the ITA, the terms of the international agreement to which Uganda is a party prevails over the provisions of the ITA in case the terms of the international agreement are inconsistent with the provisions of the Act.

According to Section 88(5) of the ITA, where an international agreement provides that income derived from sources in Uganda is exempt from Ugandan tax or the application if the treaty results in a reduction in Uganda tax, the benefit of that exemption or reduction shall not be available to any person who:

• receives the income in a capacity that is other than that of a beneficial owner, within the meaning accorded to that term by the relevant international agreement, and who does not have full and unrestricted ability to enjoy that income and to determine its future uses, and

• does not possess economic substance in the country of residence.

Please find below a table showing the countries with which Uganda has DTAs and the applicable WHT rates on various categories of income.

Recipient

WHT (%)

Dividends Interest RoyaltiesManagement

fees

Taxation of branch

profits

Repatriation of branch

profitsDenmark 10/15 (1) 10 10 10 30 15India 10 10 10 10 30 15Italy 15 15 10 10 30 30Mauritius 10 10 10 10 30 15Netherlands 0/5/15 (2) 10 10 NA 30 15Norway 10/15 (3) 10 10 10 30 15South Africa 10/15 (4) 10 10 10 30 15United Kingdom 15 15 15 15 30 15

Note

1. With respect to the Uganda/Denmark DTA, the rates applicable on dividends are:• 10% if the beneficiary holds at least 25% of the capital of the company paying the dividends.• 15% in all other cases.

2. With respect to the Uganda/Netherland DTA, the rate applicable on dividends is 15%, except where the investment is new or is an expansion of the current investment made after the DTA entered into (10 September 2006).

For new investments and expansions of current investment, the rates are:• 0% if the beneficiary holds at least 50% of the shares in the company paying the dividends.• 5% if the beneficiary holds less than 50% of the shares in the company making the payment.

3. With respect to the Uganda/Norway DTA, the rates applicable on dividends are:• 10% if the beneficiary is a company that directly holds at least 25% of the capital of the company

paying the dividend.• 15% in all other cases.

4. With respect to the Uganda/South Africa DTA, the rates applicable on dividends are:• 10% if the beneficiary holds at least 25% of the capital of the company paying the dividends.• 15% in all other cases.


Uganda

Tax administration

Taxable periodA normal period of 12 months is known as a year of income. This spans from 1 July to 30 June. On application, a taxpayer may be allowed to use a substituted year of income, which is a 12-month period other than the normal year of income.

Tax returnsThe ITA provides for two provisional returns within a 12-month period (financial year). The first provisional return is due within the first six months of the accounting year while the second is due by the end of the 12th month of the accounting year.

The Self-Assessment Return (SAR) is due by the end of the sixth month after the end of the accounting year.

Electronic filing has been introduced for all tax returns.

Payment of taxFor all companies, a system of provisional payments on account, based on estimated profits, is in place. The first payment of 50% is due by the end of the sixth month of the accounting period and the second payment is due by the end of the 12th month. The balance is expected to be paid together with the SAR.

Tax audit processIn most cases, audits are initiated by the URA, which notifies the taxpayer of the records they need to prepare before commencement of the audit. The URA then reviews the records. This is normally done at the premises of the taxpayer, where the URA can obtain the necessary clarifications from the bookkeepers.

The audit findings are then communicated to the taxpayer subsequent to whom an assessment is raised. If the taxpayer does not agree with the objection decision, they may appeal to the Tax Appeals Tribunal or to the high court.

Statute of limitationsThe Tax Procedures Code Act provides for a five year check of records.

The individual provisions in the ITA and VAT Act were repealed and updated accordingly.

Topics of focus for tax authoritiesThe focus of the URA keeps shifting but is generally based on the risk analysis of the information availed to them. Currently, the focus is on transfer pricing and the application of reduced tax rates in respect to DTAs.

Zambia 413www.pwc.com/taxsummaries

Zambia

PwC contact

Jyoti MistryPricewaterhouseCoopers LimitedPwC PlaceStand No. 2374, Thabo Mbeki RoadLusaka, ZambiaTel: +260 211 334000 ext. 4023Email: [email protected]


Since the 2017 Budget, the following measures have been put in place with effect from 1 January 2017:

• Increase in the capital allowance rate from 50% to 100% for implements, plants, and machinery used in farming and agro-processing.

• Requirement for statutory bodies currently exempt from income tax to pay withholding tax (WHT) on rental income at the rate of 10%.

• Increase in the advance income tax rate from 6% to 15%.• Increase in the period in which input value-added tax (VAT) refunds can be claimed

from seven years to ten years for exploration companies.• Input VAT claim period reduced from six months to three months.• Appointment of taxable suppliers as Withholding VAT Agents.• Abolishment of VAT group registration scheme.• Suspension of customs duty on aquaculture implements for a period of three years.• Increase in customs duty on semi-processed edible oils from 5% to 25%.• Increase in excise duty on air time from 15% to 17.5%.• Modification of excise duty on opaque beer to include presumptive rates.• Introduction of a skills development levy (SDL) payable on a monthly basis by the

employer at the rate of 0.5% of total gross emoluments paid by an employer to its employees.

• Increase in penalties on general offences and on failure to provide records for inspection from 8,000 penalty units to 20,000 penalty units and from 10,000 penalty units to 20,000 penalty units, respectively.

• Mandatory requirement for bank account holders to obtain taxpayer identification numbers.

• General reduction in tax compliance submission deadlines.


Under the Income Tax Act, Zambia has a source-based system for the taxation of income. Income deemed to be from a Zambian source is generally subject to Zambian income tax. Zambian residents are also subject to income tax on interest and dividends from a source outside Zambia.

A non-Zambian resident enterprise with a Zambian permanent establishment (PE) will be subject to corporate income tax (CIT) on its Zambian-source income. If there is no PE, Zambian-source income of the non-Zambian resident may still be subject to WHT (see the Withholding taxes section).

PwC Worldwide Tax SummariesZambia414

Zambia

The standard CIT rate applicable to the income of companies (and other persons other than individuals) is 35%.

The following sources of income are subject to different CIT rates:

Source of income CIT rate (%)Electronic communications networks or service licensees (income in excess of 250,000 Zambian kwacha [ZMW])

40

Farming 10Agro-processing 10Export of non-traditional products 15Production of organic fertiliser and chemical manufacture of fertiliser 15

The rates applicable for mining operations (for both base metals and industrial minerals) are as follows:

Tax on mining operations (for both base metals* and industrial minerals**) RateCIT 30%Additional variable profits N/A

The CIT rate of 35% is applicable on income from mineral processing***.

Notes

* Mining operations means an operation carried out under a mining right, excluding an operation carried out under a mineral processing licence only or an exploration licence.

** Industrial minerals include rocks or minerals other than gemstones, base metals, energy minerals, or precious metals used in their natural state or after physical or chemical transformation, including barites, dolomite, feldspar, fluorspar, graphite, gypsum, ironstone when used as a fluxing agent, kyanite, limestone, phyllite, magnesite, mica, nitrate, phosphate, pyrophyllite, salt, sand, clay, talc, laterite, gravel, potash, potassium minerals, granite, marble, clay, silica, diatomite, kaolin, bentonite, or quartz.

*** Mineral processing means the practice of beneficiating or liberating valuable minerals from their ores, which may combine a number of unit operations, such as crushing, grinding, sizing, screening, classification, washing, froth floatation, gravity concentration, electrostatic separation, magnetic separation, leaching, smelting, refining, calcining, and gasification or any other processes incidental thereto.

Reductions in CIT rates apply to a company operating under a priority sector declared under the Zambian Development Agency Act (ZDA Act), 2006, as amended.

Reduced CIT rates apply in some other cases, including for certain companies listed on the Lusaka Stock Exchange.

Mineral royalty taxThe mineral royalty tax regime in Zambia has undergone a number of changes since 2015. However, with effect from 1 June 2016, the following mineral royalty rates apply:

Description Rate (%)For a holder of a mining licence:

Of the norm value of the base metals produced or recoverable under the licence, except when the base metal is copper.

5

Of the gross value of the energy and industrial minerals produced or recoverable under the licence.

5

Of the gross value of the gemstones produced or recoverable under the licence. 6Of the norm value of the precious metals produced or recoverable under the licence. 6


Zambia

Description Rate (%)Where the base metal produced or recoverable under the licence is copper:

On the norm value when the norm price of copper is less than 4,500 United States dollars (USD) per tonne.

4

On the norm value, when the norm price of copper is USD 4,500 per tonne or greater, but less than USD 6,000 per tonne.

5

On the norm value, when the norm price of copper is USD 6,000 per tonne or greater. 6

Local income taxesThere are no income taxes imposed by the provincial or local authorities on businesses.

Corporate residence

A person other than an individual will be resident in Zambia if it is incorporated or formed under the laws of Zambia or if the central management and control is exercised in Zambia.

Permanent establishment (PE)Broadly, a non-Zambian resident may have a Zambian PE if it has a fixed place of business in Zambia or if it has a dependent agent that has and habitually exercises the authority to conclude contracts in Zambia.

The Zambian definition of a PE is generally similar to the Organisation for Economic Co-operation and Development (OECD) definition and contains a similar list of activities that are included and excluded from the definition of a fixed place of business.

The definition of a PE includes the furnishing of services, including consultancy services, by an enterprise through employees or other personnel present in Zambia for a period or periods exceeding, in aggregate, 90 days in any 12-month period commencing or ending in the fiscal year concerned.

Where a relevant double tax treaty (DTT) is in force, the definition of a PE in the treaty should take precedence over the Zambian domestic legislation in a case where the non-Zambian resident enterprise does not have a PE under the treaty definition.

Other taxes

Value-added tax (VAT)The VAT rate is 16% and is applicable to supplies of standard-rated goods and services.

The export of goods from Zambia is zero-rated. However, the supply of standard-rated services from a Zambian place of business is subject to VAT at 16%, whether the customer is a Zambian resident or a non-Zambian resident.

Standard-rated goods imported to Zambia are subject to import VAT at 16%.

The supply of standard-rated services to customers in Zambia by a non-Zambian supplier is subject to VAT. The non-Zambian supplier can appoint a local tax agent to account for this as output VAT; this procedure enables the Zambian customer to reclaim the corresponding input VAT. Otherwise, the Zambian VAT-registered customer would


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be required to account for the output VAT referred to as ‘reverse-charge VAT on the services procured from the non-resident supplier’. In this instance, however, there is no mechanism for the Zambian customer to recover reverse-charge VAT.

Customs dutiesGoods imported into Zambia are generally subject to customs duties. In 2017, a surtax of 5% was introduced on selected goods that are imported into, manufactured in, or produced in the country.

Excise taxesCertain goods and services, such as alcoholic drinks, tobacco, and mobile communications airtime, are subject to excise duty at the following rates:

Item 2017 rate (%) 2016 rate (%)Alcoholic drinks:

Less than 80% by volume 60 6080% or higher by volume 125 125

Tobacco* 0 145Telephone airtime** 17.5 15

* For 2017, the ad-valorem rate of 145% has been removed and a specific excise duty of ZMW 240 per 1,000 sticks will apply.

** Airtime includes minutes of voice calls, short message services (sms), multi-media services (mms), internet band width, and other similar services that a subscriber consumes on a mobile cellular telephone or other electronic communication device.

Property taxesZambia does not have a property tax other than Property Transfer Tax (see below).

Property Transfer Tax (PTT)PTT applies on the value of the transfer of land and buildings in Zambia and on the transfer of shares issued by a company incorporated in Zambia.

The rate of PTT is 5% and is payable on the open market value (or normal value of shares if greater). The PTT liability is payable by the vendor.

PTT applies on the transfer of a mining right at the rate of 10%.

Stamp taxesZambia does not have a stamp tax.

Turnover taxesFrom 1 January 2017, turnover tax has been restructured to include bands and presumptive amounts with a turnover of not more than ZMW 800,000 per annum, as follows:

Monthly turnover category (ZMW) Tax payable0 to 4,200.00 3% of monthly turnover above ZMW 3,000

4,200.01 to 8,300.00 ZMW 225 per month + 3% of monthly turnover above ZMW 4,200

8,300.01 to 12,500.00 ZMW 400 per month + 3% of monthly turnover above ZMW 8,300


Zambia

Monthly turnover category (ZMW) Tax payable12,500.01 to 16,500.00 ZMW 575 per month + 3% of monthly turnover above

ZMW 12,50016,500.01 to 20,800.00 ZMW 800 per month + 3% of monthly turnover above

ZMW 16,500Above 20,800.00 ZMW 1,025 per month + 3% of monthly turnover above

ZMW 20,800

Prior to 1 January 2017, there were no bands, and the turnover tax rate was 3% on turnover.

Income that is subject to turnover tax will not be subject to income tax or VAT.

The definition of ‘turnover’ for turnover tax purposes excludes interest, rental income, dividends, royalties, and any other income subject to WHT.

Registration taxesThe Patents and Companies Registration Agency (PACRA) applies a registration fee of 2.5% to increases and reductions in the authorised share capital of companies incorporated in Zambia.

Payroll taxesEmployers are required to deduct income tax arising on any emoluments under the ‘Pay As You Earn’ (PAYE) regulations.

Skills development levy (SDL)Effective 1 January 2017, employers are required to pay a monthly levy amounting to 0.5% of the gross emoluments payable to employees.

Social security contributionsBoth employers and employees are required to make contributions to the National Pension Scheme Authority (NAPSA). The contribution rate is 5% of the employee’s total earnings (a total 10% contribution from both the employer and employee), subject to a limit as prescribed by the authority. The maximum contribution limit for 2017 is ZMW 894.61 per employee per month (i.e. a total of ZMW 1,789.22 from both the employer and employee per month).

Provincial/local taxes other than income taxesCertain levies may be payable to local councils (e.g. Lusaka City Council).

Branch income

There is no specific legislation concerning the calculation of branch income.

In general, both Zambian resident companies and Zambian branches are required to prepare financial statements under International Financial Reporting Standards (IFRS). The accounting profit is adjusted to determine taxable profits for each source of income according to the same rules used for determining taxable income of Zambian resident companies. The normal CIT rate applies as described in the Taxes on corporate income section.

WHT applies on profits distributed by branches of foreign companies at the rate of 15%.


Zambia


As noted below, Zambian CIT rules set out a number of sources of income that are subject to CIT. Income from each source is calculated separately, and a CIT liability arises on each source with no ability to offset a loss from one source against income from another source.

Business incomeBusiness gains or profits from a Zambian source are taxable by reference to a charge year. This charge year runs from 1 January to 31 December; however, entities can apply to the Zambia Revenue Authority (ZRA) to have their accounts prepared for a different year end.

Inventory valuationIn calculating business income, IFRS should be followed for CIT purposes, including the determination of stock valuation.

Capital gainsZambia does not have a capital gains tax regime, and, except where provided otherwise in the Income Tax Act or other legislation, capital gains are not subject to tax.

Dividend incomeAll dividend income (from both Zambian and non-Zambian sources) of a Zambian resident company is subject to CIT as a separate source.

In the case of dividend income received from another Zambian resident company, the WHT deducted on the payment of the dividend should represent the ‘final tax’, and the Zambian resident company receiving the dividend is not subject to an additional CIT liability.

Interest incomeAll interest income (from both Zambian and non-Zambian sources) of a Zambian resident company is subject to CIT as a separate source.

In the case of interest income from a Zambian source, the taxable amount for the recipient company is inclusive of the WHT deducted on the payment of the interest. The WHT is available as a credit for offset against the final CIT liability of the recipient Zambian resident company.

Rental incomeZambian-source rental income of a Zambian resident company is subject to CIT as a separate source.

WHT arises at 10% on rental payments. This is the final tax for a landlord, which will not be subject to a further CIT liability.

Royalty incomeZambian-source royalty income (which is very widely defined for these tax purposes) of a Zambian resident company is subject to CIT as a separate source, together with premiums or any like consideration for the use of any Zambian property.


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The taxable amount for the recipient company is inclusive of the WHT deducted on the payment of the royalty. The WHT is available as a credit for offset against the CIT liability of the Zambian resident recipient company.

Partnership incomeWhere a business is carried on in partnership, the income to which each partner is entitled in a period is ascertained under the Zambian income tax rules, and each partner is assessed and charged separately. Accordingly, a partnership is broadly transparent for Zambian income tax purposes.

Unrealised gains/lossesUnrealised gains are not taxable, and, similarly, unrealised losses are not tax deductible.

Foreign currency exchange gains/lossesForeign exchange gains are only taxable to the extent that they are revenue rather than capital in nature, in which case they are not taxed until they are realised. Foreign exchange losses are only deductible to the extent that they are revenue in nature and realised. By exception, foreign exchange losses of a capital nature incurred on borrowings used for the building and construction of an industrial or commercial building are deductible.

Other significant itemsOther sources of income that are taxed under separate source include annuities and hedging income.

Foreign incomeAs noted above, Zambia operates a source-based system of income tax. However, where an individual/corporate entity is resident in Zambia, then they will also be subject to income tax on non-Zambian source dividends and interest income.

There are no specific anti-avoidance rules preventing deferral of non-Zambian source income, although it should be noted that Zambia has a general anti-avoidance rule.

Deductions

Expenses are generally deductible against taxable income from the same source, provided that they are not of a capital nature and are incurred wholly and exclusively for the purposes of a business.

Provisions can only be deducted to the extent that they are specific. Even if a provision complies with IFRS, it will be disallowed (and any reversal of the provision will not be taxed) to the extent it is considered to be general in nature.

Depreciation and amortisationDepreciation and amortisation are not deductible as they relate to capital expenditure.

Zambia has a system of capital allowances that provides for deductions in ascertaining business income. These are calculated at annual rates on qualifying capital expenditure, which currently apply as follows:


Zambia

Category of qualifying expenditureRate of allowance (calculated

on a straight-line basis)

Industrial buildings

Investment allowance of 10% *Initial allowance of 10% *

Annual wear and tear allowance of 5% *

Other commercial buildings Annual wear and tear allowance of 2%

Implements, machinery, and plant - farming and agro-processing Annual wear and tear allowance of 100%

Implements, machinery, and plant - manufacturing, tourism, generation of electricity, and leasing

Annual wear and tear allowance of 50%

Implements, machinery and plant - other Annual wear and tear allowance of 25%

Commercial vehicles Annual wear and tear allowance of 25%

Non-commercial vehicles Annual wear and tear allowance of 20%

Patents, designs, trademarks, and copyrights Premium allowance on straight-line basis over the life of period

for which the right is grantedMining expenditure (only available for assets brought into use) Mining deductions of 25%Farm improvements Farm improvement allowance

of 100%Construction and improvement of commercial and industrial buildings by person approved under the ZDA Act (see the Tax credits and incentives section)

Improvement allowance of 100%

* For industrial buildings, the investment allowance and the initial allowance can both be claimed in the year in which the building is put into use, together with the wear and tear allowance for that year.

GoodwillGoodwill is not deductible as it is a capital expense.

Start-up expensesA deduction is allowed for preliminary business expenses in the charge year in which that business commences, provided that the expenditure was incurred within 18 months before the commencement and provided that the expense would have been deductible if it had been incurred after the commencement.

There are special rules for prospecting expenditure in an area in Zambia over which a mining right has been granted. These enable the shareholders of the company undertaking the prospecting to claim a deduction for the prospecting expenditure, provided certain conditions are met.

Interest expensesInterest expenses are deductible, provided that the loan or advance was obtained for capital employed wholly and exclusively for business purposes (or in the production of another source of income).

Note, however, that incidental costs of obtaining finance, such as commitment and guarantee fees and any other incidental costs of a similar nature, are not deductible.

Bad debtA specific bad debt is deductible if it can be proved that it is bad or likely to become bad.


Zambia

No deduction is allowed for impairment provisions/bad debt incurred by banks and financial institutions for debts that are secured against collateral.

Charitable contributionsA payment to a public benefit organisation that is approved by the Zambian government or owned by the Zambian government is deductible.

Pension expensesPayments made by an employer by way of a contribution to an approved fund established for the benefit of employees are deductible. Note that special rules apply for the deductibility of lump sum payments and payments in arrears. Payments to non-approved pension funds are not deductible.

Payments to directorsPayments to directors are deductible, provided they are incurred wholly and exclusively for the purposes of a business (or other source of income). A payment could, however, be disallowed if it is deemed to be merely a domestic or personal expense.

Research and development (R&D) expensesAll revenue expenditure on experiments or research relating to a business is deductible. A deduction against business income is also allowed for a contribution to a scientific or educational society or institution, which is required to be used solely for industrial research or scientific experimental work connected with the business. However, capital expenditure on research is disallowed unless it qualifies for capital allowances.

Bribes, kickbacks, and illegal paymentsBribes, kickbacks, and illegal payments would normally be disallowed on the basis that they are not wholly and exclusively for the purposes of a business.

Fines and penaltiesA penalty arising under the Income Tax Act is specifically disallowed. Other fines and penalties may be disallowed on the basis that they are not wholly and exclusively for the purposes of a business.

TaxesZambian CIT is not deductible. Other tax liabilities suffered should be deductible, provided they are revenue expenses and wholly and exclusively incurred for the purposes of the business (or other source of income). See the Tax credits and incentives section regarding credits for non-Zambian tax suffered on non-Zambian source income.

Other significant itemsOther specific rules concerning expenses considered to be allowable include the following:

• Deductions for costs of an employer to establish and administer an approved share option scheme.

• Deductions for technical education.• Deductions for mineral royalty tax payments.• Deductions for SDL payments.• A fixed deduction of ZMW 1,000 for employing a person with a disability.


Zambia

Other items specifically disallowed include the following:

• A loss or expense that is recoverable under an insurance contract or indemnity.• Expenditure on the provision of entertainment, hospitality, or gifts.

Benefits provided that are incapable of being turned into money or money’s worth (e.g. the use of cars and accommodation provided by the employer) are taxable to the employer under corporate tax.

Special rules apply for determining the gains or profits of an insurance business.

Net operating lossesLosses can be carried forward to set against profits of the same source. Normally, losses are available to carry forward for a period of five years after the charge year in which the loss was incurred. In the case of a person carrying on a mining operation or hydro, wind, solar, and thermo power generation, the loss carryforward period is ten years.

The set off of a loss incurred by a person in a charge year from mining operations shall be limited to 50% of the taxable income of the person carrying on mining operations.

There is no ability to carry back losses.

Losses arising from one source cannot be set against income arising from another source.

Payments to foreign affiliatesCertain ‘loans to effective shareholders’ may give rise to CIT liabilities. Note that transfer pricing rules may also apply (see Transfer pricing in the Group taxation section).

Group taxation

There are no special CIT rules for groups of companies. Accordingly, CIT returns cannot be prepared on a consolidated basis for group purposes. Losses arising in one group company cannot be set against profits of another group company.

Transfer pricingTransfer pricing rules apply to transactions between associated persons and require that transactions are undertaken on an arm’s-length basis. Otherwise, the associated person benefiting from a reduction in income as a consequence of any non-arm’s-length terms will have its CIT computation adjusted as if the transactions had been undertaken on an arm’s-length basis.

OECD transfer pricing guidelines are generally accepted as the appropriate basis to determine arm’s-length terms.

Thin capitalisationThere are specific thin capitalisation rules. These relate to the issue of securities to an associated person, which require that the transaction is undertaken at an arm’s-length rate by reference to:

• the appropriate level or extent of the issuing company’s overall indebtedness• whether the amount issued would have been provided as a loan on an arm’s-length

basis, and


Zambia

• the rate of interest and other terms that would apply to such an arm’s-length loan.

The debt-to-equity ratio of the borrowing party is an important test to determine whether there should be a thin capitalisation restriction. However, there is no defined debt-to-equity ratio in legislation or published guidance. This should be determined by reference to normal practice that would be adopted by two independent parties on the open market with respect to the particular situation. In practice, however, the generally accepted debt-to-equity ratio for non-mining companies is 1:1.

An exception applies to a company carrying on mining operations. In this case, the mining company’s interest expense is restricted to the extent that its loans, in aggregate, exceed a 3:1 debt-to-equity ratio. For mining companies only, this thin capitalisation restriction applies to interest payable to both connected and unconnected parties.

Controlled foreign companies (CFCs)Zambia does not have a CFC regime.


The ZDA Act 2006 offers a range of tax incentives in the form of allowances, exemptions, and concessions for companies making investment in Zambia that meet certain criteria.

The fiscal benefits arising from qualifying investment licenses are as follows:

• 0% CIT for five years from the date of commencement of operations.• 0% tax on dividends for a period of five years starting from the date of

commencement of operations.• 100% improvement allowance for tax purposes on capital expenditure for

improvement and upgrading of infrastructure.

Foreign tax creditDomestic legislation provides that, where a DTT is in force and the other territory has taxing rights to a source of foreign income, a tax credit will be available to reduce the Zambian tax liability by the amount of non-Zambian tax suffered.

Where income is received from a source where there is no applicable DTT, unilateral relief should be available to offset foreign tax against Zambian tax arising on the foreign income.

In the case of both treaty relief and unilateral relief, the tax credit cannot exceed the amount of Zambian tax arising on the foreign income before the reduction.

Withholding taxes

Payments of the following items of Zambian-source income may be subject to WHT. The relevant rates under domestic legislation are as follows:


Zambia

Category of paymentRate on payment to

Zambian resident (%)Rate on payment to non-

Zambian resident (%)Dividends 15 (1) 15 (1)Interest 15 15Interest from a Lusaka Stock Exchange listed Property Loan Stock Company

0 15

Coupon income (interest) on government bonds 15 15Management or consultancy fee 15 20Royalties 15 20Rent from a Zambian source 10 (2) 10Commissions 15 20Construction and haulage contractors 0 20Public entertainment fees to entertainers/sports persons

0 20

Notes

1. 0% if paid by a mining company or a company listed on the Lusaka Stock Exchange to individual shareholders.

2. 10% WHT on rent is a final tax.

The WHT liability arises by reference to the date of payment or, if earlier, the date of accrual (i.e. the date the recipient has a legal right to claim the payment). WHT is due to be paid within 14 days of the end of the month to which the payment or accrual relates.

Zambia has DTTs in force with the following territories, which generally provide reduced rates of WHT as follows:

Recipient Dividends (%) Interest (%) Royalties (%)Non-treaty territory 15 15 20Treaty:Canada 15 15 15China 5 10 5Denmark 15 10 15France The 1950 France - Zambia DTT is accepted to apply (3)Finland 5 (1)/15 15 5 (1)/15Germany 5 (1)/15 10 10India 5 (1)/15 10 10Ireland 7.5 10 8 (5)/10Italy 5 (1)/15 10 10Japan 0 10 10Kenya 0 0 0Mauritius 5 (1)/15 10 5Netherlands 5 (2)/15 10 7.5 (6)/10Norway 5 (1)/15 10 10 (7)/15Seychelles 5 (1)/10 5 10South Africa The 1953 Rhodesia & Nyasaland - South Africa DTT is accepted to apply (3)Sweden 5 (1)/15 10 10Switzerland The 1954 Switzerland - United Kingdom DTT is accepted to apply (3)Tanzania 0 0 0Uganda 0 0 0


Zambia

Recipient Dividends (%) Interest (%) Royalties (%)United Kingdom 5/15 (8) 10 5 (4)

Notes

1. The non-resident recipient must own at least 25% of the share capital of the capital of the Zambian company.

2. The revised Zambia-Netherlands treaty was signed on 15 July 2015 but is not yet in force. This lower rate applies if the beneficial owner is a company that directly holds at least 10% of the capital of the company paying the dividends, or if the beneficial owner is a pension fund.

3. These old treaties do not follow the OECD model, and, accordingly, their application to particular circumstances must be confirmed.

4. This lower rate applies to the treaty that was signed between the two states, which entered into force effective 1 January 2016.

5. The rate of 8% shall apply in the case of payment of royalties in respect of any copyright of scientific work, patent, trade mark, design or model, plan, secret formula or process, or information concerning industrial, commercial, or scientific experience.

6. The lower rate applies to the treaty that was signed between the two states in July 2015; the status of which is still pending.

7. The lower rate applies to the treaty that was signed between the two states in December 2015; the status of which is still pending.

8. This rate applies where the dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 of the treaty.

In all cases, advance clearance must be obtained to obtain the treaty benefit and take advantage of any reduced rate of WHT or tax exemption.

It may be possible to obtain confirmation that management and consultancy fees can be paid without deduction of WHT by reference to the provisions of the relevant treaty. For treaties following the OECD model, the article concerning ‘Income Not Expressly Mentioned’ is generally taken to be relevant.

Tax administration

Taxable periodCIT is determined by reference to a charge year, being the period of 12 months ending on 31 December.

Tax returns and payment of taxThe CIT rules require taxpayers to submit provisional tax returns in the first quarter of each charge year. Where there is a change in forecast, a revised return may be submitted at the end of either the second, third, or fourth quarters of the charge year. Provisional tax payments are required to be made quarterly. The provisional tax liabilities must be based on the estimated taxable income for the current charge year.

The quarterly returns and tax payments for the 2017 tax charge year are due as follows:

• 1st quarter return due 31 March 2017 (or 5 March 2017 if submitted manually).• 2nd quarter return due on 30 June 2017.• 3rd quarter return due on 30 September 2017.• 4th quarter return due on 31 December 2017.

By concession, the ZRA allows a 10-day grace period for the payment of taxes. Accordingly, each quarterly payment can be made on the 10th day of the month following the end of each quarter.


Zambia

The returns for the 2016 tax charge year will need to be submitted by 30 June 2017. This is because the respective return relates to the 2016 tax charge in line with the law applicable to the 2016 tax charge year.

With effect from the 2017 tax charge year (i.e. tax charge year beginning on 1 January 2017), the final tax return needs to be submitted by 21 June following the end of the tax year. This must be accompanied by any balance of tax that remains unpaid. For example, the final tax return for the 2017 tax charge year is due for submission by 21 June 2018.

In the case of a manually filed tax return, the tax return needs to be submitted by 5 June following the end of the tax year. For example, the final tax return for the 2017 tax charge year, if submitted manually, is due for submission by 5 June 2018.

Tax audit processThe Commissioner-General of the ZRA has wide powers to require any person to attend to be examined at a time and place specified by notice, where it is determined that person is able to impart information necessary for the purposes of the Income Tax Act.

Furthermore, the Income Tax Act empowers the Commissioner General of the ZRA to access any type of information required for tax purposes held by legal practitioners, accountants, and financial institutions.

Statute of limitationsThere is no provision that specifically provides for a statute of limitation. However, in practice, it is accepted that the revenue authorities cannot investigate any cases after six years following the end of the charge year except in cases of fraud or wilful default. This is on the basis that taxpayers are only required to maintain documentation for a period of six years from end of the relevant charge year.

Topics of focus for tax authoritiesThe ZRA is devoting a significant amount of time to transfer pricing, and this is expected to be an increasing focus of scrutiny.

Other issues

Advance income taxWith effect from 1 January 2017, advance income tax may apply at 15% (previously 6%) on the value of commercial imports where the importer is non-compliant. This can be credited against the importer’s CIT liability on submission of the annual tax return.

Exchange controlsThe exchange monitoring regulations and foreign currency regulations in Zambia were repealed in March 2014.

Choice of business entityA non-Zambian resident company can establish a business in Zambia, either as a branch of a foreign company or a subsidiary (i.e. a Zambian registered limited liability company).


Zambia

Adoption of IFRSZambia has adopted IFRS, and the accounting profits determined thereby are adjusted for tax purposes (based on tax legislation) to determine the taxable income for purposes of determining the CIT liability.

Zimbabwe 428www.pwc.com/taxsummaries

Zimbabwe

PwC contact

Manuel LopesPricewaterhouseCoopersArundel Office Park, Building 4Norfolk RoadMount PleasantHarareZimbabweTel: +263 4 338 362/8Email: [email protected]


The introduction of Special Economic Zones occurred in December 2017; however, the laws governing the enabling of these Zones (including the formation of a Board) is still awaited.

The concept of permanent establishment (PE) has been introduced into the Income Tax Act with effect from 1 January 2017.

Several large mining companies have been appointed as value-added tax (VAT) agents.


The corporate income tax (CIT) rate for companies (other than mining companies with special mining leases, but including branches) continues unchanged at 25.75%. This rate includes a base rate of 25% plus a 3% AIDS levy.

Zimbabwe presently operates on a source-based tax system. This means that income from a source within, or deemed to be within, Zimbabwe will be subject to tax in Zimbabwe unless a specific exemption is available. The specific circumstances of a transaction should always be considered to determine whether the transaction gives rise to taxation in Zimbabwe.

Income earned by foreign companies from a source within, or deemed to be within, Zimbabwe will be subject to tax in Zimbabwe. In such a case, one should determine whether the foreign entity is obligated to register a local entity. A company is required to register a branch if it has established a place of business or is otherwise considered to be trading in Zimbabwe. A local subsidiary company may be registered as an alternative to a branch operation.

Non-residents who do not have a place of business in Zimbabwe may, however, be subject to withholding tax (WHT). See the Withholding taxes section for additional details.

Local income taxesThere are no local income taxes payable in Zimbabwe.

PwC Worldwide Tax SummariesZimbabwe429

Zimbabwe

Corporate residence

Currently, the Zimbabwean tax system is based on source and not on residency. Zimbabwe is moving towards a residence-based taxation system, but the details are still to be announced. Income derived, or deemed to be derived, from sources within Zimbabwe is subject to tax. Under the proposed new legislation, the place of effective management concept may be used for a residence-based tax. Note that this new Income Tax Act is still being drafted, and there is no certainty as to when it will become law.

Source is the place where income originates or is earned, not the place of payment. If goods are sold pursuant to a contract entered into within Zimbabwe, the source of income is deemed to arise in Zimbabwe, regardless of the place of delivery or transfer of title.

Certain types of income arising outside Zimbabwe may, in the hands of a domestic company, be deemed to arise in Zimbabwe and be taxed as such. Examples include interest and certain copyright royalties arising outside Zimbabwe. Where the income is deemed to be from Zimbabwe, relief of the foreign tax suffered, up to a maximum of the Zimbabwe tax, may be allowed as a tax credit.

Permanent establishment (PE)In the event that Zimbabwe has entered into a double taxation agreement (DTA) with the country where the foreign company resides, the entity will only be taxable in Zimbabwe if it operates through a PE, which, in most cases, includes a fixed place of business. The establishment of a local entity or branch will usually create a PE, although the provisions of the related tax treaty should be considered. If a PE exists, only the portion of the income attributable to the PE will be subject to tax in Zimbabwe.

The concept of a ‘permanent establishment’ was introduced into the Zimbabwe Income Tax Act effective from 1 January 2017. The wording is based on the base erosion and profit shifting (BEPS) guidelines that have been adopted by many countries.

Other taxes

Value-added tax (VAT)VAT is a transaction tax, and the implications will vary for different transactions. Some transactions are taxed at a rate of 15% or 0%, while other transactions are exempt from VAT. Input tax deductions may be claimed, subject to certain provisions. Advice on VAT implications of specific transactions related to corporate operations should be obtained prior to execution of transactions.

VAT is levied on every taxable supply by a registered person. A taxable supply means any supply of goods or services in the course or furtherance of a taxable activity. A taxable activity means any activity that is carried on continuously or regularly in Zimbabwe that involves the supply of goods or services for consideration.

VAT is payable on all imports for local consumption into Zimbabwe, subject to certain exemptions (e.g. in terms of a technical assistance agreement, donations to the state, goods of which the local supply is zero-rated). Import VAT is payable on the import value plus the applicable customs duty.


Zimbabwe

A company/branch is required to register for VAT if it supplies goods or services on a regular basis for consideration and if its taxable supplies (standard-rated and zero-rated supplies) exceed 60,000 United States dollars (USD) in any 12-month period.

A registered VAT vendor is entitled to deduct input tax credits paid in the course of taxable supplies made to such person, provided that a tax invoice is available to support the input tax deduction. It is also important to take note of deemed input tax deductions and prohibited input deductions. Import VAT paid may only be deducted as input tax if the import was in furtherance of a taxable activity and the required documentation (e.g. stamped customs entries) is held by the importer.

VAT returns are due by the 25th day following the month to which the VAT relates.

It is mandatory for all registered taxpayers (i.e. everyone that has a tax Business Partner Number) to use electronic fiscal registers (EFRs) that can be linked to the Zimbabwe Revenue Authority (ZIMRA). Penalties of up to USD 25 per day per point of sale may be imposed.

The concept of appointing VAT agents was adopted in April 2017. Several large mining companies were designated as agents, and the legislation demands that they deduct 10% of a gross invoice as a VAT WHT. The agents must then issue the payees with a certificate showing that the VAT WHT has been deducted in order to enable the payee to claim this against the following month’s VAT liability.

Customs dutiesZimbabwe is a member of the Southern African Development Community (SADC) as well as the Common Market for Eastern and Southern Africa (COMESA). Customs duties are payable according to the general customs tariffs that are legislated for in Zimbabwe. Preferential duty rates apply on imports from SADC or COMESA countries, while goods may be imported free of customs duties from Namibia in terms of the Zimbabwe-Namibia Free Trade Agreement.

25% surtaxes have been imposed on a number of imported goods (including footwear, clothing, and certain foodstuffs) in order to protect the local manufacturing sector.

A security deposit is required by Customs on all temporary importations of equipment to cover import VAT and customs duties (if applicable).

It is possible to import goods that are subject to customs duties into registered Customs’ bonded warehouses, where goods are kept for later use. In this case, the payment of duties may be deferred until the goods are taken out of the bonded warehouse for home consumption or acquitted if the goods are subsequently exported.

Excise dutiesExcise duties are levied on local production of excisable products and are included on most excisable products imported from other countries. Examples of the excise products and applicable rates include the following:

• Cigarettes: 40% + USD 7 per 1,000 sticks.• Spirits: USD 2 per litre.• Wine: USD 0.50 per litre.

Excise and fuel levies are also levied on petrol, diesel, and illuminating kerosene.


Zimbabwe

Property taxesProperty taxes are levied by cities, towns, and rural councils. Each of these bodies conducts periodic valuations of the properties in their area and annually set out a ‘rates schedule’ based on a percentage of the valuations. These may alter each year depending upon the entities budgetary requirements for funds. Valuations of the properties are usually based on estimates as there are very few qualified property valuators operating in Zimbabwe at present.

Transfer dutyTransfer duty is payable on the acquisition value of property purchased at the following rates:

Value of the property (USD) Rate of transfer duty0 to 5,000 USD 4005,001 to 20,000 2% of the value above USD 5,00020,001 to 50,000 3% of the value above USD 20,00050,001 and above 4% of the value above USD 50,000

Transfer duty is normally payable by the buyer, but the agreement for the sale of the property will determine the person liable to pay these costs. In addition, conveyance costs of up to 4% (plus 15% VAT) must be added on.

Stamp dutyCertain transactions may attract stamp duty. The amount of stamp duty payable will differ and will be based on the nature of every individual transaction.

The basic transactions can be summarised as follows:

Transaction Stamp dutyBonds 0.4% (USD 0.40 for every USD 100 or part thereof)Brokers notes - purchase of securities 0.25% (USD 0.25 per every USD 100 or part thereof)Brokers notes - purchase/sale of any movable property other than a security

0.10% (USD 0.10 per every USD 100 or part thereof)

Brokers notes - purchase/sale of any immovable property

1% (USD 1.00 per every USD 100 or part thereof)

Off market share transfer instruments 2% or USD 2Cheques 0.05% (USD 0.05)

Tax advice should be obtained for major transactions in respect of the transactions mentioned above in order to ensure that the correct stamp duty implications are considered.

Capital gains taxIt should be noted that capital gains tax is payable in Zimbabwe on the disposal of immovable property or shares that are held in listed (on the Zimbabwean Stock Exchange) or unlisted companies at the following rates:

Acquired pre-February 2009

• Listed securities: 1% of proceeds.• Property: 5% of proceeds.• Unlisted securities: 5% of proceeds.


Zimbabwe

Acquired post-February 2009

• Listed securities: 1% of proceeds.• Property: 20% of capital gain.• Unlisted securities: 20% of capital gain.

Payroll taxesZimbabwe operates a pay-as-you-earn (PAYE) system that is called the ‘Final Deduction System’ (FDS). This is based on the presumption that all employers must register for PAYE (both local and foreign-based employers), and that they are responsible for calculating, collecting, and paying the correct amount of PAYE every month to ZIMRA. Tax audits are carried out periodically (every year or two) to test the payroll systems.

The full burden of collecting the correct tax is placed on the employer, and, because of this, there is no requirement for employees to file annual tax returns in respect of employment income.

Social security contributionsZimbabwe has a limited social security system. The National Social Security Scheme (NSSS) contributions are payable at the same rate of 3.5% of basic salary by the employer and employee, with a salary cap set at USD 700 per month.

Manpower training levySubject to some exceptions, employers are required to pay a 1% monthly training levy (on the gross wage bill) to the Zimbabwe Manpower Development Authority.

Workmen’s compensationUnder the Workmen’s Compensation Act, employers are required to contribute to a fund that provides cash benefits for industrial injury, disability, and death. Contribution rates are supposed to vary according to inherent occupational risk, from less than 2% in most low-risk commercial/administrative occupations to 11% for high-risk sectors.

Standards Development FundWith a few exceptions, employers are required to pay 0.5% of their quarterly gross wage bill to the Standards Development Fund. The amount is payable on all payments made by the employer on behalf of the employee, including medical aid and pension contributions.

Branch income

Branch income that is received or has accrued from a source within, or deemed to be within, Zimbabwe is taxable in Zimbabwe in terms of the normal corporate tax rules.

A branch is regarded as an extension of its foreign head office. A branch may therefore not deduct fees paid to its foreign head office (unless a tax treaty makes provision for such deduction) as it is argued that a branch cannot transact with itself. Reimbursement of actual expenses may, however, be deducted, subject to the normal deduction rules.

A 15% WHT is imposed on any payments made in respect of head office charges.


Zimbabwe

The amount of fees charged by the head office to the Zimbabwe branch is also subject to a limitation, usually based on a maximum of 1% of total expenditure (excluding the charge itself and any capital allowances). Exchange control regulations also limit the remittability of administration and management fees to 2% of turnover.

Note that the move from a source-based system to a residence-based system may affect the level of profits that are attributed to Zimbabwe. These laws are still pending, and no date of implementation has been given.


The Act tax base for CIT is taxable income rather than profits. The source and nature of the income determines whether the amount is taxable or not. In addition to amounts received or accrued from actual Zimbabwean sources, there are deeming provisions that bring income from foreign sources into Zimbabwean taxable income.

In general, all receipts from a Zimbabwe source are taxed, excluding amounts that are proven by the taxpayer as being capital receipts. Most expenditure items and some specified exemptions are deductible against income. Capital expenditure is generally not deductible, with amounts on specific items being deductible by way of annual allowances spread over a period.

Inventory valuationThe legislation permits three methods of inventory valuation: historic cost, cost of replacement, or net realisable value. Standard cost based on first in first out (FIFO) is normally used for accounts valuations and is an accepted basis for tax purposes. Last in first out (LIFO) is not permitted for tax or for accounting purposes. The tax valuation may differ from the accounting valuation; this is a rare occurrence in Zimbabwe but is acceptable.

Capital gainsSee Capital gains tax in the Other taxes section.

Dividend incomeDividends received from Zimbabwe incorporated companies are tax exempt. When received from non-Zimbabwe companies, they are taxed at a flat rate of 20%; however, relief is granted by allowing any foreign tax suffered as a tax credit (up to a maximum of the 20% local rate of tax).

Interest incomeInterest accruing to Zimbabwe resident companies from ‘financial institutions’ is subject to a 15% WHT and thereafter is exempt from CIT (the WHT becomes a final tax). Interest from other local or foreign sources is included in gross income and is taxed at the normal CIT rate. Relief will be granted for any foreign tax paid, up to the maximum Zimbabwe tax rate.

Partnership incomeThe partnership itself is not taxed directly; however, the taxable income of the partnership is calculated in the same way as corporate income and is then allocated amongst the partners in accordance to their agreed profit sharing ratios. This income is taxed in their hands at the basic CIT rate.


Zimbabwe

Rent/royalties incomeRents and royalties are generally treated as normal taxable income and are taxed at the basic CIT rate. Rent arising in respect of land and buildings situated outside of Zimbabwe, however, is exempt from local tax.

Foreign incomeWhere income (including business profits) is deemed to be from a Zimbabwe source, it will form a part of the local company’s taxable income and will be subject to tax at the basic CIT rate. Relief in respect of foreign taxes suffered will be granted unless it is clear that the true source of the income is, in fact, Zimbabwe.

Deductions

The Act makes provisions for specific deductions. Some of the deductions (e.g. the deduction of foreign exchange losses, development and exploration costs, hire purchase allowances, and manufacturing allowances) can be more complex.

Capital allowancesThe cost (including finance charges) of machinery, implements, and other articles used by the taxpayer in the production of income is deductible in four equal annual allowances. No apportionment is required where the asset was held for less than 12 months.

Industrial buildings (including hotels) constructed and used by the taxpayer in the production of income qualify for an initial allowance of 25% of construction cost in the year they enter service. Thereafter, an annual allowance of 25% is deductible for each year following the year of construction. Additions to existing buildings (not alterations or repairs) qualify for the same deductions. It is important to note that the allowance is calculated on the cost of construction and not the cost of acquisition. In the latter case, the allowances are set at 5% of the cost.

A mining exploration expenditure incurred before commencement of production is deductible in full in the first year of production against income derived from the mine. Subsequent development expenditure is presently written off in the year expended.

Capital allowances may also be deducted with respect to leasehold improvements.

A recovery or recoupment of allowances previously claimed should be included in the gross income of a taxpayer in the event that the allowance is recovered or recouped by way of disposal. The recoupment is calculated on the capital allowances previously granted.

GoodwillGoodwill is currently not deductible for tax purposes in Zimbabwe.

Start-up expensesStart-up expenses may be deducted if incurred within 18 months of commencement of business and not considered to be capital in nature.

Interest expensesZimbabwe has thin capitalisation rules based on a 3:1 debt-to-equity ratio. A portion of the overall interest may be disallowed if this ratio is exceeded.


Zimbabwe

Bad debtBad debts written off may be claimed, but not a provision for bad debts.

Charitable contributionsDonations (with varying maximum limits) made to specified charities and educational bodies may be claimed.

Entertainment expensesEntertainment expenses are not deductible for tax purposes.

Fines and penaltiesFines and penalties are not deductible for tax purposes.

TaxesTaxes are generally not allowed as a deduction against income unless they form a part of a cost of an allowable expense (e.g. VAT incurred on an expense line that may not be claimed as input tax).

Net operating lossesAssessed tax losses may be carried forward (but not backwards) for up to six years, provided the company continues to trade. This restriction does not apply to mining companies. Tax laws do not allow for losses to be transferred to other group companies, and anti-avoidance provisions may be triggered by transactions designed to transfer or exploit assessed losses.

Assessed losses are reduced in the event of a compromise agreement with creditors.

Payments to foreign affiliatesThe law prohibits the deduction of amounts incurred in excess of specified limits in respect of management and general administration expenses, as well as interest. This applies to branches or subsidiaries of both local and foreign companies.

The limit on management and general administration expenses is based on such expenses exceeding 1% and 0.75%, respectively, for a company already in production and prior to production of total tax-deductible expenses.

Group taxation

No taxation of combined operations is allowed in Zimbabwe, including where operations are conducted by more than one company.

Transfer pricingEffective 1 January 2014, transfer pricing legislation was introduced under a provision titled ‘tax avoidance’. This legislation does not detail any parameters or requirements that corporations should follow, nor has ZIMRA issued any practice notes.

This legislation was enhanced with effect from 1 January 2016 to enable the use of the Organisation for Economic Co-operation and Development (OECD) and United Nations (UN) guidelines in respect of cross-border transactions.


Zimbabwe

It is important to note that, in addition to cross-border transactions between connected persons being examined, the law also covers internal (domestic) transactions between connected persons.

Thin capitalisationThe limit on the deductibility of interest is based on a company incurring interest charged by a subsidiary, a fellow subsidiary, or a holding company when the debt-to-equity ratio exceeds 3:1.

Controlled foreign companies (CFCs)Zimbabwe currently has no CFC rules.


It has been announced by the Minister of Finance that Zimbabwe is moving away from taxation incentives; however, the following are still available.

Note that this is a high-level summary, and certain conditions should be met in order to utilise these incentives.

Person for whom incentive is available and duration of incentive Tax incentive

Tax treatment for normal taxpayers

Taxpayers operating at designated growth point areas.

The capital allowance is calculated as 25% of the cost of construction of a commercial or industrial building in growth point areas in the year when the building enters service and 25% during the three years that follow the year of construction.

Capital allowances are calculated as 25% of the cost of construction of industrial building in the year when the building enters service and 25% during the three years that follow the year of construction.

Taxpayers operating at designated growth point areas.

Deduction of an investment allowance at 15% on cost of specified assets.

No investment allowance granted.

For all taxpayers in build, own, operate, and transfer (BOOT) or build, operate, and transfer (BOT) arrangements.

First five years: Taxed at 0%. Second five years: Taxed at 15%. Thereafter: Taxed at normal rate.

Taxed at 25%.

Exporting taxpayers. An additional allowance of 100% of cost incurred in an export country in order to export Zimbabwean goods to such country may be deducted.

Export expenditure incurred is deductible for tax purposes.

For all manufacturing taxpayers exporting 50% or more of output (by volume).

Taxed at a reduced rate of 20%. Taxed at 25%.

Mining company holding a special mining lease.

Taxed at a reduced rate of 15%. Taxed at 25%.

Operator of a tourist facility in a tourist development zone.

First five years: Taxed at 0%. Thereafter: Taxed at normal rate.

Taxed at 25%.

Industrial park developer. First five years: Taxed at 0%. Thereafter: Taxed at normal rate.

Taxed at 25%.


Zimbabwe

Foreign tax creditWhere foreign income is taxed in Zimbabwe, a tax credit (limited to the amount of local tax suffered) will be set off against the local tax liability.

Withholding taxes

WHTs are applicable where dividends and royalties or similar payments are declared or distributed to non-Zimbabwean residents (and Zimbabwean residents in some instances).

DividendsDividends declared by a Zimbabwean company to a non-resident holding company will be subject to non-resident shareholders tax (NRST), a WHT. NRST is payable at a rate of 15% unless treaty relief is available. Dividends from companies listed on the Zimbabwe Stock Exchange have a rate of 10%. NRST is payable within ten days after declaration of the dividend.

InterestWHT of 15%, calculated on the gross amount of interest, is payable on interest accruing to any person resident in Zimbabwe. This applies to interest arising from a registered banking institution or unit trust scheme. The tax withheld is a final tax, and the financial institution is responsible to withhold the tax.

Non-resident investors, however, are currently exempt from any WHT on interest.

Royalties or similar paymentsWHT on royalties are payable once a Zimbabwean company pays a royalty to a non-Zimbabwean resident. WHT is levied at a rate of 15% and is payable within ten days of the date of payment. The WHT falls due upon accrual (i.e. when payable), and actual payment is not a factor.

A royalty includes payment for the use or right to use any patent or design, trademark, copyright, model, pattern, plan, formula or process, or any other property or right of a similar nature. It also includes the imparting of any scientific, technical, industrial, or commercial knowledge or information for use in Zimbabwe. The nature of the amount payable should therefore be carefully considered in order to determine whether the relevant amount represents a royalty.

FeesFees are defined to include amounts that are technical, managerial, administrative, or consultative in nature; costs are paid externally. There are some exceptions, but the definition is broad and brings in most costs that may be charged to a Zimbabwean person.

WHT is levied at a rate of 15% and is payable within ten days of the date of payment.

Summary of WHT payableThe non-residents WHT rates and treaty relief for Zimbabwean DTAs can be summarised as follows. It should be noted that the tax treaties contain certain requirements that should be met before the reduced tax rate may be applied.


Zimbabwe

The definitions of dividends, interest, and royalties in the various treaties should also be considered.

Recipient Dividends (%) Interest (%) Royalties (%) Fees (%)Non-resident 15* 0 15 15Treaty:Bulgaria 10 N/A 10 10Canada 10 N/A 10 10France 10 N/A 10 10Germany 10 N/A 7.5 7.5Malaysia 10 N/A 10 10Mauritius 10 N/A 15 15Netherlands 10 N/A 10 10Norway 15 N/A 10 10Poland 10 N/A 10 15South Africa 15 N/A 15 15Sweden 15 N/A 10 10United Kingdom 5 N/A 10 10

* Applies to unlisted companies. The rate for companies listed on the Zimbabwe Stock Exchange is reduced to 10%.

‘N/A’ means that the provisions of the tax treaty limited the rate to a rate that is higher than the local Zimbabwean rate. It should be noted that a treaty can only provide tax relief and cannot impose a higher tax rate.

These are payable within ten days of the date of distribution or accrual.

Zimbabwe has either negotiated, or is currently negotiating, tax treaties with the following countries:

• Botswana• Democratic Republic of

the Congo• Indonesia• Iran

• Jamaica• Namibia• Serbia and Montenegro• Seychelles• South Africa

• Tanzania• Tunisia• Zambia

Tax administration

Taxable periodThe tax year-end is 31 December each year. Applications may be made for a different year-end if good reasons are given (e.g. to comply with the international group year-end). In the first year of trade, a longer or shorter period than 12 months may be accepted to tie in with a future year-end.

Tax returnsThe CIT return is due by 30 April in the following tax year.

Payment of taxZimbabwe regulates the payment of CIT on four dates during the course of the current tax year; these are referred to as Quarterly Payment Dates (QPDs). The first payment of 10% is due by 25 March of the respective tax year. The second payment of 25% is due by 25 June of the respective tax year. The third payment of 30% is due by 25 September


Zimbabwe

of the respective tax year. The fourth payment of 35% is due by 20 December of the respective tax year.

All taxes are expected to have been paid by the 25th day of December. If there is an adjustment after the year-end accounts have been finalised, a top-up payment must be made. There is no set date for this. However, in practice, this payment should not be more than 10% of the annual tax liability. ZIMRA often imposes a 10% per annum interest charge on any underpayments of QPDs.

WHT payments are due within ten days from the date of distribution or accrual.

Tax audit processTax audits do not, at present, have a set cycle; however, the aim is to establish a three-year cycle in the future.

Statute of limitationsThe statute of limitations is generally three years unless ZIMRA considers that there is fraud or misrepresentation involved. In those circumstances, there is no set limit on how far back ZIMRA can go, but they usually do not go beyond six years in practice.

Topics of focus for tax authoritiesZIMRA is focused on ensuring that all compliance issues are in order and that VAT and payroll taxes have been correctly calculated.

Anti-avoidanceCurrent Zimbabwe legislation contains basic anti-avoidance sections that empower the Commissioner General to disregard the implications of a transaction or scheme if it can be proven that:

• such a transaction or scheme had been entered into to avoid or postpone the payment of any duty or levy imposed by the Act

• it was entered into or carried out by means or in a manner that would not normally be employed in the entering into or carrying out of a transaction, operation, or scheme of the nature of the transaction, operation, or scheme in question, or

• it has created rights or obligations that would not normally be created between persons dealing at arm’s length under a transaction, operation, or scheme of the nature of the transaction, operation, or scheme in question.

The Commissioner General may, at the Commissioner General’s sole discretion, impose this legislation on any transaction or scheme, which will place the burden of proof on the taxpayer to prove that any/all of the requirements noted above will not be applicable to the transaction or scheme.

Note that the anti-avoidance sections have been amended to include transfer pricing legislation effective from 1 January 2014 (see Transfer pricing in the Group taxation section).


Zimbabwe

Other issues

Exchange controlZimbabwe has been operating a multi-currency system since February 2009. The Zimbabwe dollar (ZWD) was demonetarised effective April 2009. This has had a significant impact on the country’s exchange control regulations.

The Exchange Control Handbook in Zimbabwe is not available to the public; only banking institutions have access to these regulations.

Transactions that involve the transfer of funds to countries outside Zimbabwe are generally subject to bank approval.

The issue of shares in a Zimbabwe company to persons residing outside of Zimbabwe requires specific exchange control approvals. A limit of 49% is available for non-residents. A 51% local shareholding by indigenous persons is a requirement. Applications may be made for increased levels; each case will be decided on its own merits.

441www.pwc.com/taxsummaries

Worldwide Tax Summaries Editorial Team

Worldwide Tax Summaries Operations Director and Executive EditorChris WooleyPwC US+1 813 222 7097 [email protected]

Director, Global Tax Knowledge ManagementJim CalderonPwC US+1 202 414 [email protected]

Worldwide Tax Summaries – Corporate Taxes 2017/18 represents the combined efforts of more than 500 local PwC tax specialists in over 150 countries and territories. While too numerous to name individually, we thank them for their efforts in preparing this guide.

To obtain regularly updated information on the corporate and individual tax rules in operation in over 150 countries, please visit Worldwide Tax Summaries Online at www.pwc.com/taxsummaries.

To download an eBook version of Worldwide Tax Summaries ‑ Corporate Taxes 2017/18, please visit www.pwc.com/taxsummaries/ebook.

Prior-year editions of Worldwide Tax Summaries – Corporate Taxes (dating back to 2010/11) are available in the Archives section on Worldwide Tax Summaries Online.

To contact the editorial team, please email us at [email protected].


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The world’s taxes at your fingertips

If you are responsible for managing taxes in a business that trades or operates across a number of different countries, you will recognise how much of a challenge it can be trying to keep on top of the corporate tax rates and rules in each of them, notwithstanding the fact that these frequently change.

Worldwide Tax Summaries – Corporate Taxes 2017/18 is a useful reference tool, offering quick access to information about corporate tax systems in 157 countries worldwide, in an easily digestible format.

Written by local PwC1 tax specialists in each country, this guide covers recent changes in tax legislation as well as key information about income taxes, residency, income determination, deductions, group taxation, credits and incentives, withholding taxes, indirect taxes, and tax administration, up to date (unless otherwise stated) as of 1 June 2017.

Visit our mobile friendly online version, which is updated regularly throughout the year, at www.pwc.com/taxsummaries.

1 “PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

